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The use of regional economic techniques to analyze forest policy impacts : the case of the impact of… Ottens, Johannes 1973

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THE USE OF REGIONAL ECONOMIC TECHNIQUES TO ANALYZE FOREST POLICY IMPACTS: THE CASE OF THE IMPACT OF CLOSE UTILIZATION POLICY ON THE LEVEL OF EMPLOYMENT WITHIN THE KAMLOOPS REGION by JOHANNES OTTENS B.S.F. , University of Br i t ish Columbia, 1968 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF FORESTRY in the Department of Forestry We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA June, 1973 In presenting t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r reference and study. I f u r t h e r agree that permission f o r extensive copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the Head of my Department or by h i s r e p r e s e n t a t i v e s . I t i s understood that copying or p u b l i c a t i o n of t h i s t h e s i s f o r f i n a n c i a l gain s h a l l not be allowed without my w r i t t e n permission. Department of The U n i v e r s i t y of B r i t i s h Columbia Vancouver 8 , Canada Date i i ABSTRACT A technique for estimating the impact of a change in forest policy upon the future level of employment within a region is developed and assessed. The theory, methodology, and relative merits of economic base studies, input-output analysis and simulation modelling are discussed as suitable alternative techniques for impact analysis. The economic base study used in conjunction with location quotients is used in this investigation owing to time and data restr ict ions. The benchmark, economy is Brit ish Columbia. The study region, which is located within the Kami oops Forest D is t r i c t , has been defined in terms of data collection units, trade and functions, and timber flows. The calculated value of the employment multipl ier is 3 .05 . This overstates the true value of the regional mult ipl ier due to the product mix problem, incomplete external trade data for both the benchmark economy and the study region, and fai lure to account for indirect exports of the bench-mark economy. The policy studied is the close ut i l i zat ion policy which was o f f i c i a l l y implemented on January 1, 1966. The def in i t ion, method of implementation and purpose of this policy are discussed. The impa.ct of the close ut i l i zat ion policy on the structure and employment of the regions forest industry in 1971 and in 1980 are i i i estimated. Using the calculated employment mult ip l ier , the total impact of the policy is estimated. In 1971, there were fewer jobs in the study region than there might have been i f the close ut i l i zat ion policy had not been implemented. It is predicted that, by about 1980, without the close ut i l i zat ion policy, changes in forest industry structure and market demands which would have resulted from economic forces alone would have led to the same levels of annual harvests, tree sizes harvested, average productivity and average sawmill capacity as had been achieved earl ier by implementing the policy. Suggestions are given for improving the accuracy and precision of estimates of future timber harvests, and productivity in logging and sawmilling. Public agencies should include estimates of the impact on employment of their proposed policies and investments in their benefit-cost analyses. iv TABLE OF CONTENTS Page Chapter I Introduction 1 Chapter II Possible Approaches to Analysing Forest Policies for Planning Purposes 6 Economic Efficiency Implications of Forest Policies 7 Economic Impact of Forest Policies 10 Economic Impact 10 Economic Planning Models 11 1. Economic Base Studies 12 a. Economic Base Theory 12 b. Assumptions of the Regional Economic Base Model 15 c. Units of Measurement 17 d. Measuring Sectors 19 i . Surveys 20 i i . Assumptions 20 i i i . Location Quotients 20 i v . Minimum Requirements Technique 27 e. Criticisms of Economic Base Studies 28 2. Input-Output Model 32 3. Other Economic Planning Models 36 Approach Used 37 Chapter III The Study Region and i ts Economy 40 Definition of the Study Region 40 The Nature of Economic Regions 40 The Purpose of the Study Region 42 Definition of the Study Region 44 The Study Region as a Data Collection Unit 44 The Study Region as a Functional Unit 46 The Study Region Timbershed 53 1. Delineating the Timbershed 57 a. The 1965 Timbershed 66 b. The 1971 Timbershed 71 The Economy of the Study Region 76 The Study Region 79. The Benchmark Economy 84 Value of the 1961 Regional Employment Mult ipl ier 86 Evaluation of the 1961 Mult ipl ier 89 Value of the 1966 Regional Employment Mult ipl ier 9.5 V Chapter IV The Effect of the Close Ut i l i zat ion Policy on the Employment Level in the Study Region 100 The Close Ut i l i zat ion Policy 100 Definition and Implementation of the Close Ut i l i zat ion Policy 100 Calculation of the Allowable Annual Cut 101 Allocation of the Allowable Annual Cut 104 Stumpage Appraisals 106 Depletion Records 107 Modified Methods of Implementing the Close Ut i l i zat ion Policy 109 Purpose of the Close Ut i l i zat ion Policy 110 Effect of the Close Ut i l i zat ion Policy 115 Approach and Assumptions 115 The Effect of the Close Ut i l i zat ion Policy on the Level of Employment in 1971 117 Timber Supply 117 Logging and Sawmilling 129 1. Logging 130 a. Logging Costs and Productivity 130 b. Logging Productivity and Employment in 1971 136 2. Sawmilling 142 a»> Economies of Scale in Sawmilling 142 b. Effects of the Close Ut i l i zat ion Policy on Sawmilling Productivity 155 i . Lumber Production . 1 6 0 i i . Average Revenue from Mil l ing Smallwood 161 i i i . Additional Costs of Processing Smallwood 163 i v . Sawmill Industry Structure in 1971. 164 v. Sawmilling Employment in 1971 167 Regional Employment in 1971 172 Effect of the Close Ut i l i zat ion Policy on the Level of Employment in 1980 173 Timber Supply 173 Logging 175 Sawmilling 176 Pulp Mi l l 179 Regional Employment in 1980 180 Chapter V Conclusions 183 Mult ipl ier Analysis 183 vi Impact of the Close Ut i l i zat ion Policy ]j*3 Short-Term Impact ^ Long-Term Impact J°° Suggested Improvements in Estimation Methods I B D Footnotes -|9 2 Bibliography 201 Appendices v i i LIST OF TABLES Tables Page 1 Distribution of annual harvests in the Kami oops Forest Dist r ic t among types of land status -1961 to 1971. 54 2 Estimated distribution of Br i t ish Columbia's timber harvest, 1965 to 1971. 59 3 Timbersheds of sawmilling centres, December, 1965.. 60 4 Summary of the distribution of timber supplies of timbershed PSYU's, .December, 1965.. 62 5 Sawmill capacity by sawmilling centres, December, 1965. 68 6 Timbersheds of sawmilling centres, December, 1971. 72 7 Summary of the distribution of timber supplies of timbershed PSYU's, December, 1971. .74 8 Sawmill capacity by sawmilling centres, December, 1971. 77 9 Employment by industry in the study region, 1961. 80 10 Calculation of employment mult ip l ier , 1961. 87 11 Distribution of sales of resource industries of Br i t ish Columbia, 1955. 93 12 Employment in resource.industries in Br i t ish Columbia indirectly linked to exports, 1961. 94 13 Employment mult ipl ier part ia l ly adjusted for indirect exports of Br i t ish Columbia, 1961. 96 14 Allowable annual cut increases of PSYU's in the study region.- 119 15 Allowable annual cut increases of Tree Farm Licences in the study region. 121 v i i i Volumes available for quota increases in PSYU Proportion of smallwood volume by PSYU. Loqging productivity in the Kami oops Forest Dist r ic t and in Brit ish Columbia, 1962-1971. Comparison of log scales. Sawmilling productivity in the Interior of Br i t ish Columbia, 1960-1970. Study sawmills used by Dobie (1971). Manufacturing costs per M fbm of lumber for circular saw sawmills. Manufacturing costs per M fbm of lumber for small log sawmills. Number of employees per establishment in sawmills and planing mil ls in Br i t ish Columbia, 1967 and 1968. Operating sawmill and lumber production in Brit ish Columbia, 1955-1971. Distribution of sawmills in the study region of firms with quotas and Tree Farm Licences. Employment by sawmill s i ze . Employment in sawmilling in 1971. ix LIST OF ILLUSTRATIONS Income and commodity flows in a regional economy. The study region, Br i t ish Columbia, 1961 Census Divisions and Region Six . Br i t ish Columbia, major highways and study region. Br i t ish Columbia, main railways and study region. Br i t ish Columbia, Region Six and Forest D is t r i c t s . Timber flows in the study region - 1965. Timber flows in the study region - 1971. Annual Harvests from Timber Sales and TFL's in the Kamloops Forest D is t r i c t , 1955-1965. Sawmilling productivity in the Interior of Br i t ish Columbia, 1960-1965. Traditional Long-run average cost curve. "L"-shaped Long-run average cost curve. Short-run average cost curves for different scales of plant and long-run average cost curve. Production cost related to sawmill capacity for three small log sawmills. Labour requirements by sawmill scale. X APPENDICES Appendices Page I Table 1 Ranger d i s t r i c t timbersheds, 1965. 201 Table 2 Ranger d i s t r i c t timbersheds, 1971. 207 II Employment by industry required for self -suff ic iency in Brit ish Columbia in 1961. 211 III Allowable annual cut increases of individual firms. 214 xi ACKNOWLEDGEMENT I wish to thank the following persons for their assistance by providing information for this thesis: Mr. D. Cartwright, formerly of the Department of Industrial Development, Trade, and Commerce, V ictor ia , Br i t ish Columbia, Mr. T. Laanemae, Stat ist ics Canada, Vancouver, Brit ish Columbia, Mr. J.A. Mcintosh, Western Forest Products Laboratory, Vancouver, Brit ish Columbia, Mr. D.W. Munro, Weyerhaeuser Canada Limited, Kamloops, Brit ish Columbia, Mr. B.E. Neighbour, B.C. Forest Service, Kamloops, Br i t ish Columbia, Mr. D.M. Roussel, Canada Manpower Centre, Kamloops, Br i t ish Columbia. I also wish to thank Dr. D. Haley, my Graduate Program Committee Chairman; Dr. H.C. Davis, School of Community and Regional Planning; Dr. J . Dobie, Western Forest Products Laboratory; and Dr. J.H.G. Smith, Faculty of Forestry for their encouragement and guidance. Special thanks are also due to my wife, Diane, for her patience and help. Johannes Ottens, June 20, 1973 1 CHAPTER I INTRODUCTION The role which public forest policy has in regional industrial and economic development is probably nowhere as evident as in Br i t ish Columbia. The very fact that almost 95% of the province's approximately 138 mil l ion acres of forest land is provincially owned and administered by the B.C. Forest Service in the public interest ensures that forest policies can influence the structure and performance of the forest industry. It is generally recognized that public forest policies in Br i t ish Columbia do, in fact , influence a l l aspects of the forest industry (Haley, 1971; Nagle, 1970). Changes in the forest industry of the province, however, are not confined to that industry, but s p i l l over into the rest of the economy as wel l . The extent to which the rest of the economy is affected by changes in the forest industry dictate that forest policy formulation and implementation in Br i t ish Columbia deserve more careful planning than has been done in the past. The forest industry is an engine of growth in Brit ish Columbia (Denike and Leigh, 1972). The forest industry, in 1971, directly employed 83,200 persons or 10% of the total provincial labour force and generated about $2,183 mil l ion sel l ing value of factory shipments in manufacturing or 47% of the provincial total (Dept. of Industrial Development, Trade, and Commerce, 1972d). Moreover, the forest industry and i ts employees support sizeable service, construction. 2 and pay taxes. These are among the indirect impacts which the forest industry has on the rest of the province. It is estimated on the basis of a study of the total impact of the forest industry on the economy of Ontario (Hedlin, Menzies and Associates, 1969) that each new job in the forest industry generates almost two other jobs in other industries (Reed, 1972). Even from this brief account i t should be apparent that forest policy changes could conceivable result in signif icant impacts in a large portion of the province's economy. Br i t ish Columbia forest policy characterist ical ly has been developed in a pragmatic fashion on a basically technical forest management framework. Policy implementation has been f lex ib le , with changes made readily as new circumstances arose. Many policies have been based on intuit ion and implemented on a t r i a l and error basis with seemingly l i t t l e formal planning (Haley, 1971; Nagle, 1970; Pearse, 1970; Carney, 1967). The degree of planning involved in developing the close ut i l i zat ion p o l i c y j for example, is reflected by several comments made by the former Minister of Lands, Forests and Water Resources: Although some operators already have been working to close ut i l i zat ion standards and the principles have been applied to a degree in recent decisions regarding establishment of new and expanded pulp and mil l capacities, the impact of this new programme is almost incalculable. Consider alone the fact that the actual range of increase in volume throughout the province is from 15% to 1700%, depending on the timber stand. Then add the unknown factor of degree of application of the policy by industry . . . and I think you' l l agree a crystal ball might be more useful than a computer. 3 In the meantime, i f more policies and programmes are needed, I can promise you we w i l l provide them. The demand for wood products w i l l match the exploding population and we don't intend to be le f t behind. (Wil l iston, 1966a, p. 34) Later, in Apri l 1966, he admitted that the B.C. Forest Service had not foreseen the d i f f i cu l t ies which were being experienced by sawmill operators with respect to technology and equipment, financing and number of sawmills per area (especially in the Cariboo area). The former minister's answer to this turn of events was, " . . . I have found there is only one way to find out the answers and that is to start and then see what happens." (Wil l iston, 1966c, p. 32). He then suggested a few changes, such as promoting more integrated m i l l s , fewer mil ls and mil l l icencing, which might be required to set the industry onto the path toward complete forest u t i l i za t ion . The i n i t i a l results of the close ut i l i zat ion policy in A p r i l , 1966 indicate that a more formal approach to forest resource planning is jus t i f i ed . Nagle (1970) suggested that more effective forest resource planning can be accomplished by assuming a more formal approach to the following: 1. the estimation of future developments as a basis for policy decisions, with relatively less reliance on past developments at decision-time, 2. expl ic i t formulation of the aims of policy, and rather less incidental action, 3. co-ordinated action by individual ministries and firms, not random action. (Nagle, 1970, p. 23) 4 Planning in this sense requires a mathematical formulation of a sector or regional economy. This model is used to forecast developments in the sector or economy which w i l l take place assuming no action on the part of the board of planners. The result of this forecast is compared with the stated aims of the economy. The board can then set up a plan or a careful statement of changes which are necessary to meet the stated aims of the economy. Much of Br i t ish Columbia forest policy was intended to have regional economic effects. The core of this forest policy is the sustained y ield forest management policy. Sustained y ie ld forest management was defined by Sloan (1957) as " . . . a perpetual y ie ld of wood of commercially usable quality from regional areas in yearly or periodic quantities of equal or increasing volume." Although other benefits of maintaining continuous forest cover such as protection of watershed, s o i l , recreation and wi ld l i fe values were alleged, the objectives which were stressed are economic. A sustained-yield policy has, as one objective, the maintenance of forest cover and growth, thus ensuring a perpetual supply of raw material for the forest industries, with consequent s tab i l i t y of industrial communities and assurance of permanent pay-rol ls . (Sloan, 1957, p. 40) The developments in forest tenures which followed the implementation of sustained y ield policy were disigned not to merely obtain revenues from Crown forests, but to provide growing and stable employment (Sloan, 1957). Therefore, i t would be appropriate that forest policy makers should use regional economic and forestry modelling tools to aid them in rational administration of the Crown forests in the best 5 interest of the public. In Chapter I I , two possible approaches to analysing forest policies - economic eff iciency, or maximizing net revenue from the forest resources and the incidence of the effects of such policies w i l l be br ief ly discussed. The approach used in this study, as well as other possible regional economic approaches, w i l l be outlined. In Chapter II I , the study region and i ts economy w i l l be described. Also, in this chapter, the value of a s ta t i c , regional, employment multipl ier w i l l be estimated using the location quotient technique. In Chapter IV, the B.C. Forest Service's close ut i l i zat ion policy w i l l be described and i ts effects on the structure and employment on the Kamloops region's forest industry in 1971 and 1980 w i l l be estimated. Using the estimated value of the employment mult ip l ier , the total impact of the close ut i l i zat ion policy on employment in the study region wi l l be estimated. In the f inal chapter, the technique used in this study w i l l be evaluated as a planning tool for forest policy makers. 6 CHAPTER II POSSIBLE APPROACHES TO ANALYSING FOREST POLICIES FOR PLANNING PURPOSES The analytical approach which a forest resource planning board chooses to use should be appropriate to the goals of the economy which the board serves. The more important goals of the Brit ish Columbia forest administration have been to encourage growing and stable employment in forest industries which w i l l foster stable communities, fu l le r ut i l i zat ion of the forest resource in mil ls and in logging, as well as to raise public revenue from provincial forest resources (Haley, 1971; Nagle, 1970). Policies to achieve these major goals are (1) to manage Crown forests on a sustained y ield basis, (2) to offer long-term and non-competitive tenure arrangements to encourage investments in mil ls and forest management by private companies (3) to encourage the adoption of closer ut i l i zat ion standards, and more recently, (4) to induce the forest industry tc expand more quickly to the physical l imits of the forest resource. These policies have been a major influence in shaping the structure, investment and product-mix of the forest industry; and in affecting the course of regional develop-ment in Br i t ish Columbia (Haley, 1971; Nagle, 1970). Subsequent policy formulation and implementation should take into consideration the implications of these changes on the economic efficiency of allocations of resources among forest industry sectors and other forest uses, as 7 well as on the incidence of these changes on various groups and the environment. The board should not consider economic efficiency to the exclusion of incidence of effects of various forest pol ic ies . Although this thesis is concerned with developing and using tools to analyse the incidence of forest policy effects, the question of economic efficiency implications of forest policies deserves some discussion in order to indicate the direction in which such analysis could take. ECONOMIC EFFICIENCY IMPLICATIONS OF FOREST POLICIES Sustained y ield forest management and related policies in Brit ish Columbia have been c r i t i c a l l y examined (Pearse, 1970; Smith and Haley, 1970; Haley, 1977; Pearse, 1965). More recently, the B.C. Forest Service has been insist ing that the industry adopt close ut i l i zat ion standards in order to reduce wood waste. Although, exceptions are made for s i l v icu l tura l and some economic reasons, uniform sets of rules apply for a l l stand types, regardless of their location. The implications of this policy as far as economic efficiency is concerned have not been studied in deta i l . In may be f ru i t fu l for both the B.C. Forest Service and industry to determine how much economic waste is being introduced into the forest industry by reducing physical waste. It is unlikely that this policy can be just i f ied on economic grounds. 8 ' Policies have recently been introduced to encourage the intensif ication of forest management, i . e . increased investments in forest management at the intensive margin (B.C. Forest Service Forest Productivity Committee, 1972). The basic premise for more intensive management is that future gains in volume increment w i l l allow an increased allowable annual cut now. The phenomenon, called the "allowable annual cut effect ," should be scrutinized before any such investments are undertaken (Schweitzer et al_., 1972; Haley, 1972). Forest policy can affect the structure of the forest industry. The trend in Br i t ish Columbia forest industry toward fewer and larger integrated firms has been partly the result of forest pol ic ies . Some of the implications of increasing economic concentration in forest products manufacturing and in forest land control in Br i t ish Columbia have been studied (McLeod, 1971; Ottens, 1971; Tobin, 1970). Forest policy has accelerated the disappearance of smaller and older mi l l s . It is not always economically eff ic ient to phase out old sawmills in order to improve productivity in the industry (Foster, 1972). A similar confusion of technical with economic efficiency was displayed by the Fisheries Service of Canada with their vessel licencing scheme (Pearse, 1972). The salmon f leet may be much more eff ic ient than i t was, but i ts unit cost per ton of catch has probably increased. Analysis in this vein should be conducted for the forest industry to prevent hasty and possible ineff ic ient phasing out of older sawmills. 9 The forest product mix can be and, in fact , has been influenced by forest pol ic ies . During the 1960's the government was encouraging the establishment of new, and the expansion of exist ing, pulp mil ls in Br i t ish Columbia. Currently, the B.C. Forest Service is encouraging the expansion of the lumber industry by their "third band" policy which makes increased timber volumes available to sawmill firms who are operating in Public Sustained Yield Units and possess adequate plants to u t i l i ze increased timber volumes (Dingwall, 1969). Matching the manufacturing f a c i l i t i e s with the wood resources without regard for market trends and regional comparative advantage for various forest products can be avoided by adopting appropriate planning techniques (Nagle, 1970). F inal ly , the spatial distribution of establishments relative to their wood supply and markets ought to be examined. Spatial relat ion-ships of the forest industry in Bri t ish Columbia, using the techniques of economic geography, have been conducted for the coast by Hardwick (1963) and for the north central interior by Mullins (1967). While these two studies forecast future trends in location and structure of the forest industry, they were not expressly concerned with spatial economic eff iciency. Spatial efficiency studies carried out for the forest industry have used spatial equilibrium transportation models^ (Holley, 1968; Callahan, 1962) or cost comparisons based on hypothetical mil ls (Haviland, et. al_., 1968), or shift-share analysis (Ashby, 1962). These studies were conducted for a l l , or almost a l l , of North America, but could be adapted for inter-regional analysis in one province. 10 Economic Impact of Forest Policies Before examining models which may be used to measure the effects on regional economies, the concept of economic impact w i l l be explained. Economic Impact Economic impact has been defined by Waggener (1972) as follows: Generally, i t is the sum affects of pressures, adjust-ments, and other types of response expressed in the context of economic act iv i ty . Other types of impacts which are currently receiving increasingly more attention are environmental and soc ia l , as well as impacts of forestry policy on non-timber forest uses. These various types of impacts do not occur independently of one another. For instance, a change in total employment in a community may be the result of a forest policy designed to affect the forest's productivity, the water quality of local r ivers , or the setting aside of forest land for parks. The reason for such regional employment effects resulting from forest management policies is that regions consist of a number of interacting social and natural systems, such as the economy, population and forest. These systems, in turn, are composed of smaller interacting systems, or subsystems. The mechanisms by which subsystems in a region interact with one another are called "linkages." Some of these "linkages" w i l l be developed further in another section of this chapter. 11 Planning models which provide an estimate of the order of magnitude and direction of the consequences of forest policies and which take into account these linkages can be extremely complex. However, the planning which is actually used wi l l be governed by the purposes and resources of the planners. A simple, straight l ine , projection of regional economic trends may y ield just as accurate and more plausible results than a complex and sophisticated model. Of course, such a simple model w i l l not l ike ly reveal much knowledge about the interactions among the various systems of which the region is comprised. Other important considerations which enter into the choice of models are the necessity for completeness in the fore-cast, and the data, budget and personnel available (Hamilton, et a l . , 1969). Economic Planning Models Economic planning models consist of a synthesis of two types of models, one describing the interrelationships among sectors in the region or the structure of the regional economy, and the other estimat-ing the changes within sectors of the regional economy. These models range in complexity from economic base studies and input-output analyses accompanied by economic trend forecasts to dynamic regional growth simulation models. A brief survey of the application of regional economic models to the investigation of forest impact problems indicates that economic base and input-output techniques have been used most frequently. For reasons which wi l l become evident from the following review, the economic base technique wi l l be used in this study. Therefore, that technique w i l l be examined in some 12 detail while the other methods wi l l be given only a short review. 1. Economic Base Studies (a) Economic Base Theory Economic base theory is an application of Keynesian multipl ier theory to a regional economy. The Keynesian aggregate demand function may be expressed as y = c + i + g + e (1) where y is the total regional income derived from the expenditures on consumption c , investment i , government g and exports e . If consumption varies l inearly with income, then any autonomous change in any element of the aggregate demand wi l l result in a more than proportionate change, via the mult ip l ier , in the level of regional income such that y = TTF Ce + i + g + e) (2) where b is the marginal propensity to consume and the multipl ier is —— . Economic base theorists stress the importance of the export element in aggregate demand of a region. Base theory divides a regional economy into two sectors, basic and service. The basic sector or economic base of a region consists of economic act iv i ty in industries which produce goods and services for markets outside the 13 region. The service or non-basic sector consists of economic act iv i ty in industries which produce goods and services for local consumption. The regional economic base supports the region's consumption of local ly produced goods and services as well as i ts imports. The economic base multipl ier concept can be expressed by Y = ( ^ ) e (3) where services are a constant k proportion of the total economic act iv i ty in the region y , the multipl ier is ( ) and e is basic sector act iv i ty . Since y = s + e , where s is economic act iv i ty in the service sector, equation (3) can be rewritten as y = (1 + 1 ) e (4) e The service to basic ratio or i . indicates that each unit of basic e activ ity accounts for s units of service act iv i ty . The multipl ier is then (l + I) or £ . e e In the broadest sense, the economic base includes a l l regional economic act iv i ty the level of which depends on economic forces which are exogenous to the region, such as export demand and interest rates. - In general practise, only exports are measured as the region's economic base. The local or service sectors include local consumption, residential construction, business investment and expenditures, and government investment and expenditures i f purchasing decisions for 14 these depend solely on local factors, i . e . factors which are endogenous to the region. Intermediate inputs are indirectly linked to either the export or service sector (Tiebout, 1962). For example, a region's sawmill industry may export lumber. If the local logging industry sel ls i ts logs to the local sawmills, then logging would be linked to exports and logs c lassi f ied as indirect exports. The relationships between the basic and service sectors can be demonstrated by a flow diagram (Figure 1). Imports of Final and Inter- Imports of Intermediate mediate Goods and Services Goods and Services FIGURE 1. Income and commodity flows in a regional economy (After Davis and Hainsworth, 1970). 15 i Flow set (1) represents the exported goods and services, which have been produced in the basic sector, leaving the region and in return for which money payments enter the regional economy. Total income of the region is increased i n i t i a l l y from the sale of these exports. Flow set (2) indicates the backward linkages from the f inal export producing industries to the intermediate goods and services producers. This flow further increases the regional income. Flow set (3) represents a Keynesian or income multipl ier process through expenditure by the recipients of income from the basic sector and through sub-sequent rounds of respending by the recipients of incomes from the i n i t i a l rounds of the income multipl ier process. Flow sets (4) and (5) represent leakages from the economy in the form of imports of f inal and intermediate goods and services. Imports of intermediate goods and services by the basic sector reduces the income resulting from the backward linkages from the f inal export producers. Similar ly , the imports of intermediate goods and services by the service sector reduces income which could be earned i f these were produced loca l ly . Furthermore, i f local residents spend their incomes on imported f inal goods arid services, the income multipl ier effect w i l l be diminished. (b) Assumptions of the Regional Economic Base Model The base model which has just been described is a simple, stat ic and short-run concept. The assumptions of this model are as follows: 1. Exports give the primary, i f not the sole, support to regional 16 economic growth. The level of income created in the export and local investment sectors depends on forces other than the level of local income (Tiebout, 1962). Changes in the level of act iv i ty in any of the subsectors of the economic base have the same effect cn the regional economy. For example, a given increase in lumber exports have the same effect on the income flow in the economy as an equivalent increase in copper ore exports (Davis and Hainsworth, 1970). The proportion of service sector act iv i ty relative to the total economic act iv i ty within the region is invariable over time and in response to the levels of exports. This implies that the average and marginal propensities to consume local ly are equal (Davis and Hainsworth, 1970). The actual propensity to consume local ly is more properly expressed as the product of the propensity to consume local ly and the income created per dollar of local consumption sales in order to account for the import content of service sector sales. (Tiebout, 1962). The income form of the base multipl ier is then where x is total regional income, e is exports, i is local investment, c^  is the propensity to consume loca l ly , and c 2 is the income created per dollar of local consump-tion sales. 17 4. Interregional feedback from increases in exports is considered negligible (Davis and Hainsworth, 1970). 5. A pool of unemployed resources, labour and capital ex ist , either inside or outside the region, which the regional economy can draw on. Otherwise increased export demands would only result in increased prices (Davis and Hainsworth, 1970). The short-run basic mult ipl ier model is generally considered valid for forecasts of up to two years (Tiebout, 1962). Forecasts of export levels and local investment are made for the coming time period and the impact on the total regional economy are estimated by means of the mult ipl ier . (c) Units of Measurement Which unit to use to measure basic and service economic act iv i ty in the model depends on the model's purpose as well as avai lab i l i ty of data. Base theory seeks to l ink the output in basic industries in a region to the total regional output as has already been demonstrated (Figure 1). The obvious units of measurement to use include physical output, sales, value-added, and income and expenditures accounts (Tiebout, 1962; Andrews, 1954). Physical output can be dismissed as a measurement unit because physical units cannot be added across industries or even within indus-t r ies . Therefore, physical output must be reduced to a common denominator, usually in money terms. 18 Sales, the value of total transactions, is not a suitable unit of measurement either. Sales double count actual economic act iv i ty because intermediate goods and services are included in the sales value of each f irm. Value-added, the sales of each firm less cost of intermediate goods and services, avoids the double counting problem of sales. How-ever, besides the d i f f i cu l t ies in securing the necessary data, establish-ing what proportion of the value-added accrues as income to local residents is even more d i f f i c u l t . Income and expenditure accounts would allow the investigator to derive the size of a l l the flows of income shown in Figure 1 and therefrom the relevant propensities and the division between basic and service production in the region. However, not only would the data required be expensive to col lect , the local residents and businessmen would have to be very co-operative. In view of the d i f f i cu l t ies encountered in attempting to use these units, payroll and, more often, employment have been commonly used in economic base studies as proxies for dollar value of output and income. Employment, cr the number of jobs, is the most commonly used unit of measurement for economic base studies for several reasons. The concept of the job is easily understood by non-economists, is often a central government policy consideration and is often the most accessible form of data available. In using employment as a proxy for income or output, i t i s impl ic i t ly assumed that changes in employment w i l l parallel changes in output. This assumption wi l l lead to both 19 short-run and long-run errors (Siege!, 1966). In the short-run, this assumption implies that the regional production function is l inear and homogeneous. However, i t is more l ike ly that regional firms w i l l experience diminishing returns as output increases in the short-run. For instance, at times of f u l l employment an increase in a region's exports may only result in an increase in per capita income (Lane, 1966). In the long-run, this assumption denies that productivity w i l l improve over time. For both these reasons i t is better, i f possible, to measure the changes in economic act iv i ty in terms of output and then to convert output to employment. Another remedy may be to use payrolls as a proxy for income. Payrolls are positively associated with labour productivity. However, the drawback is that payroll data impl ic i t ly give more weight to a high-income job than a low-income job. Such a valuation of jobs may not be appropriate for public policy. A common misconception in using employment as a proxy for income is the implication that the income multipl ier is equivalent to the employemnt multipl ier (Lane, 1966). It must be kept in mind that the income multipl ier is a function of the propensity to consume and to import, in i ts simplest form. On the other hand, the employment mult ipl ier is a function of the e last ic i t ies of the aggregate supply curves for labour faced by the investment goods industries and the consumer goods industries. (d) Measuring Sectors One of the main problems in conducting economic base studies 20 is the separation of the basic sector from the service sector. The four methods used to derive the service-to-basic ratio are (1) surveys, (2) assumptions, (3) location quotients and (4) minimum requirements techniques. (i) Surveys It is generally agreed that the survey method of collecting data and dividing the total income of the community into basic, service and intermediate sectors which was described by Tiebout (1962) is the best. The intermediate goods and services producing industries are "traced out" into either the basic or service sector. Unfortunately, this method is very time-consuming and expensive. An economic base study with the purpose of providing a better understanding of the Ontario forest industry sector, and i ts direct and indirect impacts on the provincial economy, used surveys (Hedlin, Menzies and Associates, 1969). ( i i ) Assumptions The assumption method, by which industries are segregated into sectors according to the investigator's judgement, can be dismissed, except in the simplest regional economies, as being unacceptable (Tiebout, 1962). ( i i i ) Location Quotients Location quotients, sometimes called concentration rat ios, 21 coefficients of local izat ion, or coefficients of special ization, are measures of self -suff ic iency of an economic area. The use of location quotients results in a method which compares the relative concentration of employment, industry by industry, in the study region to another, larger region which is referred to as the benchmark economy. In the f o i l owing: R./x LQj = J L _ ( 6 ) . N./X LCh is the location quotient for industry i , R... is the employment in industry i . within the study region, x is the total regional employment, N. is the employment in industry i within the bench-mark economy, and X is the total employment in the benchmark economy. If LQ_. is equal to unity, then the study region is regarded as being se l f - suf f ic ient in production from industry i , neither exporting nor importing i ts products. If LQ_ is greater than unity the study region is regarded as being specialized in production from industry i and to export excess output. The opposite implies that the study region is an importer of products from industry i . The ratio of the sum of the basic employment to the sum of the service employment is used to determine the regional employment mult ipl ier . An example w i l l serve to i l lust rate the method of using location quotients. In equation (6), let x be 20,000, N. be 80,000 and X be 800,000 employees. If LQi is equal to unity, a l l of R. would be employed to produce for local consumption, then 22 xN R i = 1 _ 20,000(80,000) 800,000 2,000 Therefore, employment in industry i must be 2,000 in order for the region to be se l f -suf f ic ient in production from industry i . If R. were actually 3,000 employees, then 2,000 would be employed in production for local markets, which leaves 1,000 employees to produce for the export market. If R.. was actually 1,000, then a l l of the 1 ,000 v/orkers would be engaged in the service sector and the region would be regarded as being an importer of products from industry i . If . R. was actually 2,000, then a l l 2,000 workers would be in the service sector and the region would be in the service sector and the region would be se l f - suf f ic ient in industry i production. The location quotient method makes several assumptions which necessitate making adjustments to the results arrived at by using equation (6). F i r s t l y , the location quotient technique assumes that the consumption patterns of the study region and the benchmark economy are the same for both f inal consumption and intermediate goods and services. Appropriate adjustments could be made for interregional differences in tastes, demand patterns, standards of l i v i n g , income distribution and prices which could be revealed through geographical budget studies (Davis and Hainsworth, 1970; Tiebout, 1962). 23 Secondly, i t is assumed that there is no difference in labour productivity between the study region and the benchmark economy. These assumptions ignore differences in the economies, locational deter-minants of industries, differences in f inal and intermediate products, specialized goods and product di f ferent iat ion, and net exports of the benchmark economy (Davis and Hainsworth, 1970; Tiebout, 1962). Thirdly, an adjustment can be made i f the benchmark economy is a significant net importer or exporter of certain goods and services (Davis and Hainsworth, 1970). The benchmark economy is assumed to be se l f - suf f ic ient and to have zero net imports or exports. Therefore, i f the benchmark economy imports a quantity of products of industry i which requires m units of labour, then the location quotient for industry i in the study region is calculated as follows: R i / X , % L q i " (N, I m j )/X ( 7 ) where X becomes (N. + m.) instead of N- . i 1 1 i What is considered to be the main flaw in the location quotient technique is that the level of exports of the study region is sensitive to the level of aggregation of industry c lassi f icat ion used. This flaw has been labelled the "problem of product mix" and is the result of the form in which data by industry are available. Stat ist ics Canada (1970) defines an industry as . . . a group of operating units e.g. companies or establishments, 24 engaged in the same or a similar kind of economic act i v i t y , e.g. logging camps, coal mines, clothing factories, department stores, laundaries. (Statist ics Canada, 1970, p. 7) Industries are c lassi f ied by various Standard Industrial Classif ication (S.I.C.) levels by means of a numerical coding system in which the level of aggregation of industries is indicated by the number of digits in each industry code number. Industries which include a narrow range of act iv i t ies or products are c lass i f ied by three- and four-dig i t S.I .C. groups. These three- and four -digit S. I .C. industries are combined into Major Groups and. these in turn into Divisions. The exports of one industry may be s ta t i s t i ca l l y absorbed by the imports of another i f both industries are grouped together into a lower S.I .C. d ig i t level industry. For example, suppose that the Major Group 8- Wood Products Industry in the study region consists of Sawmills, Planing Mil ls and Shingle M i l l s , S.I .C. 251, and Veneer and Plywood M i l l s , S. I .C. 252, each employing 300 persons. Let total employment in the region and in the benchmark economy be 10,000 and 100,000 persons respectively. Let employment in the benchmark economy in S.I .C. 251 and S.I .C. 252 be 2,000 and 4,000 persons respectively. Then, by equation (6), the level of basic employment can be determined as follows: S. I .C. 251 basic employment = 300 - (10 000 • £*PPP.) = 100 v lu»uuuioo,ooo ; S.I .C. 252 basic employment = 300 - (10 ,000^000) = _ 1 Q 0 25 Therefore, the study region must import the production of 100 workers in S.I .C. 252. If the two industries are grouped into Major Group 8 - Wood Products Industry, basic employment becomes 6 0 0 - (10,000^°°°) - 0 . It is possible that the level of aggregation of S.I .C. 251 may tend to reduce the estimated basic employment, since there are different species and types of sawmill products cut. No method of correcting this error is known. Therefore, in every instance, the basic employment derived from location quotients w i l l be understated (Tiebout, 1962). It can be concluded that the location quotients technique w i l l always result in an understatement of the size of the basic sector. What the technique measures is only part of the regional economic base, so that the employment mult ipl ier i t established wi l l not be correct. The significance of this discrepancy between the 'true' mult ipl ier and the one actually derived depends upon the size of the regional economy and how stable the basic ratio (e/x) is over time (Siege!, 1966). In i ts favour, location quotients have signif icant advantages over the survey method in that they are less time consuming and less costly. Also location quotients automatically account for indirect basic act iv i ty which must be "traced out" when the survey method is used. In a previous example, i t was shown how a region's logging 26 industry may be indirectly linked to the basic sector through i t s sales of logs to the local sawmilling industry which exports lumber. A region with a larger proportion of employment in sawmilling than the benchmark (which is se l f - suf f ic ient in the production of a l l goods and services) is also l ike ly to have a larger proportion of i t s employ-ment in logging. Even though the logs are sold or transferred to local sawmills, they are indirectly tied to lumber exports. Location quotients w i l l show logs as exports of the region and, thus, measure indirect exports. When the survey method is used, information about the destination of sales from local industries are required to "trace out" indirect exports (Tiebout, 1962). For purposes of projection, either the survey or location quotient technique wi l l y ie ld accurate results, given that certain restr ict ive conditions, which w i l l be discussed later , are sat is f ied , and provided that the mult ipl ier is used correctly (Siege!, 1966). For example, let the location quotient for the forest industry in a region by 1/10 and the employment mult ipl ier by 10. If one-third of the region's forest industry employment is basic, and the forest products industry expands by 300 workers, the correct impact on the regional economy would = (1/3)(300)(10) = 1,000 jobs, provided that the service-to-basic ratio remains constant over time. Several regional forest economic studies have used the location quotient technique. Maki et aj_. (1968) developed timber dependency indicators for f i fteen economic areas within the Douglar-fir region of the United States. Their timber dependency indicator was the 27 percentage of the area's total excess employment which was accounted for by the forest products industry. Their results formed the basis for a series of timber supply studies in the Douglas-fir region which were carried out by the U.S. Forest Service. Austin (1969) used the values of the timber dependency indicators to i l lust rate the importance of the timber flows within the Douglas-fir region and the possible regional economic impacts of alternative timber land management pol ic ies , A more analytical use of the indicators was made by Schallau et al_. (1969) in their study of the effect of sustained yei ld forest management upon employment, population and economic s tab i l i t y of timber-dependent areas of the Douglas-fir region. In this study, the employment and population projections were based on production forecasts. (iv) Minimum Requirements Technique A th i rd , but l i t t l e used, indirect method of measuring the regional economic base is the minimum requirements technique. This method is a refinement of the location quotient technique in that i t recognizes that the base ratio decreases in value as the size of the regional economy increases (Ullman and Dacey, 1960). This technique estimates the minimum percentage of a regional labour force which is required in various industries of i ts economy in order to satisfy i ts own needs. Any proportion of the labour force in excess of this minimum requirement is regarded to be export employment. For each sector, the percentage of the total regional labour force employed in that sector in each region is calculated for several regions a l l of which have about the same size of population. The minimum percentage 28 calculated for that particular sector is used to estimate export employment in the study region. This procedure is repeated for the other sectors. The minima are summed to produce the total service employment percentage. Then the service-basic ratio may be calculated for the study region. In order to avoid using the minima derived from the inclusion of some atypical regions, some workers have used not the th lowest but the n lowest percentages. However, this practise could be unreliable unless good judgement is excercised (Tiebout, 1962). (e) Criticisms of Economic Base Studies Besides the criticisms of the units of measurement and the methods of measurement of regional economic base which are used, much cr i t ic ism has been leveled at using economic base studies for regional planning at a l l . These criticisms are concerned with three main weak-nesses of traditional economic base studies: 1. Exports are the only source of autonomous spending in the region, 2. The base ratio is assumed to stay constant over time, such that long-run response and adjustments in the region are ignored, and 3. Base studies show the results or expected results of economic growth processes, but do not describe these processes. 29 Exports are not the only source of autonomous spending, although in many regions exports may be the most s ignif icant . Other sources of autonomous spending include local investment, government . operations and transfer payments. In the long-run, however, factors other than autonomous spending probably play a larger role in in i t ia t ing regional growth (Lane, 1966; Tiebout, 1962). Tiebout (1962) has suggested a formulation of a income multipl ier which assumes that a l l of the local sectors generate income in the long-run. However, his multipl ier does not take into account possible changes in propensities to consume and to invest. Besides, the data requirements would lead most investigators to use the base ratio formulation as in equations (3) and (4), or some other method instead. Even though there is empirical evidence to show that the base ratio decreases as the size and degree of isolation of the regional economy increases, i t is assumed in most base studies that the base ratio w i l l remain constant to the end of the forecasting period (Barkley and A l l i son , 1968; Siege!, 1966; Tiebout, 1962; Ullman and Dacey, 1960). The value of the base ratio has been hypothesized to decrease rapidly as the size of the economy increases upto a threshold size where the rate of decline in the base ratio decreases (Siege!, 1966). The threshold size of the community depends, among other things, on the scale economies present in various types of service industries. The actual change in the base ratio depends on changes in population, total community income and per capita income (Tiebout, 1962). Further instabi l i ty in the value of the base ratio results from either transitory effects or a lag in response in the service sector to adjust to changes in the basic sector. These effects may be on-going 30 before, during and after the measurement of the base. Therefore, the measured base ratio may not be in equilibrium as assumed because the effects of a number of changes in the base in a number of previous time periods are s t i l l working themselves out (Siege!, 1966). Finding the true size of the mult ipl ier may be thwarted by changing influences of region s ize , i f not by the resulting project size. It is possible to take some precautions, however. F i rs t , avoid using very small regions as planning units. Secondly, i f i t is possible, use secondary information to temper the analysis results. In rapidly growing regions, such errors may not have severe consequences since over-estimates of economic act iv i ty may be corrected by rapid population growth (Siegel, 1966). This leads to a third precaution. It may be advisable to estimate a range of forecasted economic act iv i ty rather than a single value. These precautions can be taken to minimize forecasting errors which are caused by long-run adjustments within the region. However, the traditional economic base model does not take these long-run adjustments into account in a direct manner. Factors such as response lags, influences of total income and income per capita changes, region size changes and scale economies on the interrelationships between sectors have been mentioned already. Economic base studies impl ic i t ly take into account import substitution by means of the multipl ier (Tiebout, 1962). However, base studies do not account for long-run changes in technology, productivity or transportation costs in the service sector. Not many economic models can. These changes have to be introduced separately to modify forecasts made by 31 the base study (Tiebout, 1962). These considerations lead to another major class of crit icisms of the use of base studies. Many base studies are purported to predict regional economic growth. To do this is to ignore the distinction between short-run and long-run considerations (Lane, 1966). Economic multipl ier theory explains economic expansion of output, income and employment in response to increases in aggregate demand, i f unemployment exists i n i t i a l l y ; i . e . base theory explains the results of the growth process by assuming away the problems of the growth process i t s e l f (Barkley and A l l i son , 1968; Lane, 1966; Siegel, 1966). Economic growth requires more than an increase in the stock of resources. In most base studies the supply of natural and human resources, and captial are assumed to be unlimited. The assumption of unlimited supplies has been shown to be dangerous even in the short-run in a small region (Lane, 1966). An expansion of the basic sector in a small isolated region would, in the short-run, result in increased employment and wages in the basic sector, and a decline of employment in the service sector. The fact that base theory deals only with demand-sided problems l imits i ts use in solving problems of under-developed regions with "sticky" emmigration. These supply-sided problems require solutions of how to increase regional output and per capita income (Siegel, 1966). Improvements which have been suggested to make base theory more useful in this direction include a more dynamic treatment of economic structural changes in response to autonomous spending and to local income and population levels , inclusion of micro-economic 32 relationships at the firm level and information on resource ava i lab i l i t y (Barkley and A l l i son , 1968). 2. Input-Output Model Substantial improvements over the economic base model have been made by the input-output model. The input-output model abandons the base-service dichotomy by disaggregating the economy into several interrelated sectors. In this way one of the most important and weakest assumptions of the economic base study, that the service income depends on and remains a constant proportion of basic income, is overcome. In addition, the input-output model deals with investment, government and consumption expenditures, as well as exports, as sources of in i t ia t ing economic growth (Davis, 1970; I sard, 1960). Regional input-output analysis demonstrates the flow of money into a regional economy's sectors, i ts circulation among the region's sectors and i ts leakage from the regional economy. The analysis uses three matrices: a transaction matrix, a technical coefficient matrix and a.direct -plus- indirect coefficient matrix. The second and third matrices are derived from the f i r s t . The transaction matrix consists of accounting balance equations such that purchases by sectors are l is ted in columns under each sector and sales are l is ted in rows across from each sector. The models are generally closed, i . e . they treat households as an endogenous sector rather than part of the exogenous f inal demand. The transactions matrix may be expressed as a set of the following n accounting equations showing total sales of any sector i i 33 n 1 x + y. = x ( i , j = 1, 2, . . . n) (8) j=1 1 J 1 1 where x^- is the value of the output of sector i purchased by sector j , y.j is the f inal demand for the output of sector i , and X| is the value of the total output of sector i . The sales of each sector must equal i ts purchases. Therefore, we can write: n I x . . + y. = x, ( i , j = 1, 2, . . . n) (9) i=1 'J J J where y . is the f inal payments made by sector j and x. = x- for a l l i = j . The technical coefficient matrix shows the distribution of purchases or expenditures by each sector among the other sectors and the outside world. The second matrix is written as the matrix (a^j) where a. . = x^./Xj . This matrix shows the f i r s t round of responding of receipts by each sector or what is often referred to as the technical multipl ier effect. The direct -plus- indirect coefficients matrix shows the completed process of responding of increased sales incomes by local sectors. It is derived by substituting the matrix (a. .) into equation (9) to y ie ld n x. = 2 a , , x, + y_. (10) 34 This equation may be reduced and solved for total output as a function of f inal demand to y ield X = ( I - A ) - 1 Y (11) where X = (xn-) , i = 1, 2, . . . n ; Y = (y..) , i = 1, 2, . . . n ; A = (an-j) ; I = identity matrix; and (I-A)""' is the matrix of direct -plus- indirect coefficients which is usually written in i t s transposed form for convenience of reading tabular information. The matrix column totals are sectoral income mult ipl iers. To obtain the change in local income resulting from an increase in f inal demand for sector i , multiply the column total of sector i by the change in i ts sales. To obtain the change in income in any other sector, say, households from an increase in sales to sector i , multiply the direct -plus- indirect coefficient under sector i and across from households by the increase in sales. Several studies have demonstrated how the regional input-output model can be used to estimate regional economic impacts of changes in forest-related policies and industries. One study used a transaction matrix based on published data to aid in explaining the direct and indirect impacts which the resource sectors had upon the s tab i l i t y of the rest of the Brit ish Columbia economy (Deutch, et a l . , 1959). The study concluded that the three resource sectors, forestry, f isher ies, and mining, were not interdependent. Also, the fu l l force of the economic fluctuations in the resource industries was not 35 transmitted entirely to other parts of the economy because most of the direct resource income was spent outside of Brit ish Columbia. Fluctuations were found to be less violent in the rest of the economy than they were in the resource industries and tended to lag behind those of the resources industries by (about a year or even longer. The changes in forest policies and industrial structure which were studied in the remaining studies f a l l into seven categories: (1) changes in the composition of industry groups (Hughes, 1970), (2) addition of a new type of business to the region (Main, 1971; Hughes, 1970; Gamble, 1968), (3) automation in the forest industry (Main, 1971; Gamble, 1968), (4) the closing down of a sector (Main, 1971; Gamble, 1968), (5) an expansion of timber harvesting within the region (Main, 1971; Hughes, 1970; Gamble, 1968), (6) reduction in timber harvesting in a trade-off between the forest industry and outdoor recreation (Waggener, 1972), and (7) the consequences of alternative types of forest land ownership (Hughes, 1970; Muench, 1966). Besides estimating •impacts' by multiplying changes in f inal demand by direct -plus- indirect coeff icients, impacts can also be estimated as changes in values of multipliers caused by adding or deleting a l l of parts of sectors, or by otherwise altering matrix coeff icients. An improvement on the regional input-output model is the interregional model which shows the transactions not only among sectors, but among regions as well (Kaiser, 1972). Despite the improvements of the regional input-output model over the economic base model, the input-output model assumption 36 that technical coefficients are stable through time makes results valid only in the short-run. Therefore, forecasts require a knowledge of what the technical coefficients w i l l be at the end of the prediction period. An additional d i f f i cu l ty is that the input-output model requires considerably more data. An attempt to incorporate the theoretical improvements of the input-output model into the economic base model and yet save data gathering and model building expenses is described by Tiebout (1962). This approach, or intersectoral flow model, uses employment created by sales dollars and results in the construction of only the row of the input-output matrices. 3. Other Economic Planning Models Even with the improvements which have been made to the standard economic base model, multipl ier analysis s t i l l lacks predictabil i ty in the long-run. Forecasts based on mult ipl ier analysis either assume away or ignore dynamic growth processes or supply-sided factors (Barkley and A l l i son , 1968). Several attempts have been made to produce dynamic simulation models which take into account that a regional economy may not be a simple, l inear system but actually a considerably more complex non-linear system (Forrester, 1969). A small-area economic base study was conducted by Swanson and Waldmann (1970) through simulation techniques. Their model exp l ic i t l y incorporated feedback between population (labour supply) and employment (potential .jobs) sectors to determine population, migration, job changes, labour force, participation rate changes, and industrial 37 location and growth. There was no provision made for technological change. A simulation model has also been used to increase the capability of an input-output model to assess the impact on the economy of the Greater Vancouver Regional Distr ict of local and national policies and to provide insights into the regional growth process (Davis and Goldberg, 1972). Technological change and effects of automation can be accounted for in the model by changing the technical coefficients in the matrix. The simulation portion of this model forecasts f inal demands, and links the forecasting model to the employment (input-output model) sector through equations describing changes in regional population. Improvements of these dynamic models over solely demand or supply oriented models have been gained at increases in costs of data collection and model construction. Such models would be appropriate for a multi-agency planning board which requires a comprehensive rather than a partial analysis. APPROACH USED The approach used in this study i s , by necessity, a compromise in which the purpose of the study, the weaknesses of regional economic models, and the data and time restrictions are major considerations. The purpose of the study is not to demonstrate the details of the structure of a regional economy, but to estimate the changes in regional employment from a change in forest policy. Regional accounts data are meager compared to data which are available for the province. Accounts data for the province, in turn, are scarcer than those for 38 the nation. Time and resource did not permit carrying out a survey to obtain data required to construct a more detailed regional economic model. For these reasons, the demand side of the planning model which was used in the study is an economic base study. The basic sectors w i l l be segregated from the service sector by means of location quotients using published data and Brit ish Columbia as the benchmark economy. Some of the weaknesses of the location quotients and economic base study techniques w i l l be compensated for to the extent which limited data, resources, and time wi l l allow. The other portion of the planning model provides the fore-cast of change in basic employment. The labour supply is assumed to be unlimited, but the questions of forest resource ava i lab i l i t y , technological and productivity changes, and the changes in capital are accounted for . The forest policy which w i l l be examined is the B.C. Forest Service close ut i l i zat ion policy of 1966. The details of the policy w i l l be given in Chapter IV. It is suff icient for the present to recognize that the close ut i l i zat ion policy caused a change in both volume and log size of the timber supply in the region, as well as technological and productivity changes which are embodied in newly required capital equipment. This portion of the planning model is an attempt to trace through the change timber supply and forest industry to forecast changes in forest industry employment in the region. F i r s t l y , the change in the level of forest industry employment from 1965 to 1971 with and without the new policy w i l l be estimated. The difference between the two estimates represents the 39 direct impact of the policy on forest industry employment in 1971. The total impact of the policy on regional employment w i l l be estimated by means of the employment mult ipl ier . The results of these projections wi l l be compared with actual 1971 employment data in order that the projection model may be recalibrated. With the recalibrated model, the impact of the policy in 1980 w i l l be forecast. 40 CHAPTER III THE STUDY REGION AND ITS ECONOMY In this chapter, the study region wi l l be defined and the value of i ts regional employment multipl ier w i l l be determined. DEFINITION OF THE STUDY REGION The Nature of Economic Regions Economic base studies and forecasting models describe and predict economic act iv i ty within economic regions. The properties of economic space and some types of regions which are used have been examined by several regional scientists (Fox and Kumor, 1965; Losch, 1963; Wrobel, 1962; Isard, 1956; Fisher, 1955; Perroux, 1950). Economic regions have several general characteristics in common. F i r s t l y , each region is defined to serve a particular purpose. The structures and boundaries of study regions wi l l vary according to needs of analysts and planners. These may range from studies of impacts of certain events on regional employment to studies of general regional social welfare. Secondly, regions must be delineated to fac i l i ta te data col lect ion. The location of data collection units, such as census enumeration areas, often dictate the f inal definit ion of the . study region, since many studies depend on published data. 41 Thirdly, almost a l l regions have a hierarchical structure of nodes, or centres around which functions are polarized. These may be centres of government, administration, production, consumption, employment or trade. The various functions which are carried out at centres can be ranked according to the area of hinterland which is required to support each function. Those requiring the largest extent of hinterland would be performed in the "regional capital c i t y . " Those requiring a smaller radial extent of hinterland to support them may be conducted in smaller centres. The radial extent required by the "regional capital city" functions forms the theoretical regional boundary. The f i e ld of influence of each node can also be thought of as a "density f i e l d , " the density of which declines with distance from the node in response to the cost of overcoming distance. These "density f ie lds" are also bounded by inst i tut ional and topographical barriers. Fourthly, each region contains a number of homogeneous attributes. These may be types of geographic features or resource endowments, types of economic act iv i ty , cost and price structures, some policy or program, a social or cultural characterist ic, the jur isdict ion of an agency, to name a few. Lastly, regions vary over time. The distribution and levels of activ ity at nodes wi l l change in the long-run in response to internal and external s t imul i , thus altering the configuration of the region. The study region was defined considering the above regional characteristics. 42 The Purpose of the Study Region The study region was defined in such a way that almost a l l of the employment effects which are caused by forest policy changes can be accounted for. For this purpose, the region had to be small enough to allow for analysis at a local leve l , but large enough to internalize the most signif icant effects of implementing a forest policy change. For example, suppose that a change in forest policy was to increase the allowable annual cut on a l l forest land and that this led to an increase in timber supply of a community sawmill. The increased timber supply would l ike ly result in the employment of additional loggers and mil l workers who would immigrate into the community. If the study region does not include a l l of the forest land within economic hauling distance from the community, the model can not predict the increase in employment which would result from the policy to increase timber supplies. The study region must also be large enough to prevent large fluctuations in the base ratio in the long-run. Unfortunately, i t is not certain what threshold size a region must be to obtain a base ratio which w i l l not change drastical ly as the region grows (Siegel, 1966). It is more d i f f i c u l t to define a small region which w i l l fac i l i ta te the accounting of almost a l l of the employment effect of a change in timber supply on the coast than in the Interior of Brit ish Columbia. In the Interior, logs must be transported to mil ls mainly 43 over land routes which generally follow major valleys. Given these restricted transportation routes and freight economies, the l imits of an interior community timbershed can be delineated with some degree of confidence. On the coast, logs may be trucked directly to m i l l s , or f i r s t l y to tide water and then towed to m i l l s . Log towing costs are much lower than trucking costs, and towing routes are not as restricted as land routes. Therefore, on the coast, logs may be drawn from relatively larger distances and more sources than in the inter ior . Consequently, coastal sawmill communities may have a less definite timbershed than their interior counterparts. A loss of timber supplies in one area on the coast, due to, for example, forest land withdrawl for park land, may be replaced by another source elsewhere along tide water, provided that an alternative supply exists. For these reasons, a coastal economic region must include almost the entire coast l ine , making i t v i r tual ly impossible to analyse the effects of changing timber supply on small coastal regions. The Brit ish Columbia coastal forest industry and i ts timbershed has been described in more detail by Hardwick (1963). The minimum, size of inter ior timbershed regions can be expected to increase as the value of forest products increases and as advances in transportation technology and routes occur. Changes in the spatial structure of the forest industry in the north central portion of Br i t ish Columbia from 1909 to 1966 were analysed by Mullins (1967). 44 Definition of the Study Region To meet the purpose outlined previously, the study region has been defined as a data collection unit , a functional unit and a timbershed. The Study Region as a Data Collection Unit The study region is the unit for which employment by industry data are currently available. Unfortunately, the results of the 1971 Canadian Census were not available in time for this study. Therefore, 1961 Census data are the most current which are available for both the province and the study region. Estimates of 1971 employment by industry have been made for the Kami oops Manpower Centre for their area. Corresponding data for the province are not readily available. The study region corresponds to Region Six or the Shuswap-Chilcotin Region in the interior of Brit ish Columbia, as described in the Regional Index of Br i t ish Columbia-!966 (Dept. of Industrial Development, Trade, and Commerce, 1966) (hereafter referred to as the Index), less the Williams Lake-Chilcotin Area (Figure 2). Region Six is divided into areas which consist of one dr more School D is t r ic ts . The six areas are as follows: 1. Ashcroft - Clinton Area 2. Kami oops Area 3. Li l looet Area 4. Merritt Area 46 5. Shuswap Lake - Salmon Arm Area 6. Williams Lake - Chi lect in Area Economic data for Region Six have been derived from 1961 Census Division Six data. The two units d i f fer s l ight ly in several respects (Figure 3). Census Division Six consists of Electoral Areas whereas Region Six consists of School D is t r ic ts . Also Region Six (45,215 square miles) is larger than Census Division Six (31,420 square miles). Region Six includes portions of Tweedsmuir Park and the Quesnel Lake D is t r i c t , which are part of Census Division Eight. The two areas are sparsely populated so that including them in Region Six while using only Census Division Six data w i l l not introduce serious errors. In 1961, the population in Region Six was 68,485 persons compared to 66,290 persons in Census Division Six, which is a difference of 1,185 persons over 13,765 square miles. The study region is also equivalent to the Kami oops Manpower Centre Area plus the Shuswap Lake-Salmon Arm Area. The Study Region as a Functional Unit The study region, besides being a data collection unit , approximates a fa i r l y completely functional region with Kami oops as i ts primary centre of employment, trade and administration. Kami oops accounts for a major portion of both the study ' region's population and labour force. In 1961, the population of Kamloops (including the Town of North Kamloops which is now a part 4 7 FIGURE 3. British Columbia, 1961 Census Divisions and Region Six. Scale approx 120 miles per inch A. Region Six £3 1961 Census Divisions _ _ 48 of Kamloops) was 16,290 persons or 30% of the population of the study region (55,427 persons). In 1966, the population of Kamloops was approximately 22,078 persons or 31% of the population of the study region. In 1971, the population of Kamloops was 25,599 persons (Dept. of Industrial Development, Trade, and Commerce, 1972a). Of the total employment in the study region in 1961, which amounted to 17,770 persons, industries in Kamloops accounted for 6,012 persons or 34%. In the same year, Kamloops accounted for 64% of employment in the service industries^ and 55% of employment in trade in the study region. Kamloops' share of the regional labour force as well as i ts location at the junction of the main transportation systems (Figures 4 and 5) suggests i ts importance as a trade centre for the region. The boundary of the study region delineates the l imits of the area which is l ike ly to be served by the commercial establishments located in Kamloops. In some instances, however, i t is not clear whether persons l iv ing at the fringes of the region depend on Kamloops or another node as their trade centre. For instance, i t is not clear what proportion of the population l i v ing in the Shuswap Lake-Salmon Arm Area depend on Vernon and KeTowna to supply their needs rather than Kamloops. A Kamloops Manpower Centre economist believes that one new shopping centre development in Vernon could be suff ic ient to attract almost a l l the population of the Shuswap Lake-Salmon Arm Area away from Kamloops (Roussel, interview, 1973)". Any difference between the study region and the actual trading area is probably not Highways , Study Region 50 FIGURE 5. Bntish Columbia, main railways and study region. CNR, Canadian National Railways C.PR. Canadian Pacific Railway Study Region l.'.'/A B C R British Columbia Railway Railways , , , W P &Y. White Pass and Yukon Route Under Construction • + + NAR. Northern Alberta Railway Under Survey 51 very signif icant since the population in the outlying area is quite sparse. Furthermore, data avai labi l i ty precludes defining the study region on this basis more precisely. Kamloops is also the headquarters of the B.C. Forest Service for the administration of the Kamloops Forest D is t r ic t . The forest policy which this study wi l l examine is administered by the B.C. Forest 2 Service from this headquarters over a l l of the study region (Figure 6). The region's largest forest products company, Weyerhaeuser Canada L td . , has major offices and a 1,250-tons per day capacity Kraft pulp mil l located at Kamloops. Weyerhaeuser also has sawmills at Kamloops, Vavenby, Merritt and Lumby. Weyerhaeuser controls a major portion of the study region's timber resources, holding-one small Tree Farm Licence3 (No. 35), Pulp Harvesting Area^ No. 2, and 5 cutting rights in several Public Sustained Yield Units (PSYU). The pulp mil l purchases a l l chips which have been manufactured from wood harvested in PHA No. 2. Other centres in the study region serve the lower order requirements of the population in their surrounding areas, but are mainly dependent upon primary resource industries such as logging, sawmilling, mining and ranching. B.C. Forest Service Ranger Stations,are based in some of these secondary nodes. From these Stations, Forest Ranger staff implement forest policy at a local level under the direction of headquarters staff in Kamloops. 52 FIGURE 6. British Columbia, Region Six and Forest Districts. LEGEND Scale approx 1 2 0 miles per inch Region Six E_ES___ Forest District Boundaries 53 The Study Region Timbershed The study region so far has been defined in terms of data collection and functions. The purpose of this study also requires that the region be defined in terms of a timbershed. The timbershed for the entire study region is the sum of a l l forest product manu-facturing centres, in terms of volume of annual wood supply, which are included within the study region. The region's timber supply originates from forest lands which are under three broad categories of ownership. These are Crown lands which are owned by the Province, Federal lands which include Indian Reserves, and Crown Grants, which are privately held (Table 1). From 1961 to 1971 Crown lands accounted for 82% of the annual harvest in the Kamloops Forest Distr ict compared to 2% from Federal lands and 15% from Crown Grants. Of the Crown lands, during the same period, PSYU's and TFL's accounted for 72% and 5% of the annual harvest in the Kamloops Forest D is t r i c t , respectively, while Timber Licences, Timber Berths and Farm Wocdlots accounted for only 0.5%, 3% and less than 0.1% respectively. The proportions of the annual harvest which come from these various forest lands vary according to prevailing market conditions. During periods of high stumpage rates, proportionately more timber w i l l usually be cut from forest lands other than Farm Woodlots, Timber Sales and TFL's. The reason is that only statutory royalty rates, or, in some cases no royalty, is paid for timber harvested from Timber Licences, Timber Berths and Crown Grants (Sloan, 1957). 54 TABLE 1. Distribution of annual harvests in the Kamioops-jForest Distr ict among types of land status - 1961 to 1971 . Years Land Status Timber Timber Farm Timber : Tree Farm Mi seel lan- ^rowr)^ Federal Crown Total Licences Berths Wood-Lots Sales ' Licences ; eous • . Lands Grants M cf (percent) ' i 1961 944 (0.5) 4,286 (2.1) 15 157,143 (76.8) 9,152 (4.5) 1,585 i (0.8) i 173*125 (84.7) 4,452 (2.2) 26,818 (13.1) 204,395 (100.0) 1962 744 (0.3) 3,556 (1.6) 22 170,431 (77.2) •. .11,075 •"• •'  (5.0) j 1,732 !i (0.8) 187,560 (84.9) 5,957 (2.7) 27,377 (12.4) 220,891 (100.0) 1963 1,514 (0.6) 3,390 (1.3) 58 191,837 (75.2) 11,503 (4.5). \ '3,808 , (1.5) . 212,111 (83.2) 8,100 (3.2) 34,838 (13.7) 255,050 (100.0) 1964 2,738 (1.1) 6,867 (2.7) 32 177,585 (70.5) ' 12,510 (5,0) 3,320 ] (1.3) • . 203,051 (80.6) 9,351-(3.7) 39,605 (15.7) 252,008 (100.0) 1965 3,100 (1.3) 9,898 (4.2) 22 164,071 (69.6) 11,892 ' (5.0) i 6,239 1 (2.6) 195,222 (82.7) 6,453 (2.7) 34,514 (14.6) 236,189 (100.0) 1961 - 1965 1,808 (0.8) 5,599 (2.4) 30 172,213 (73.7) . 11,226 (4.8) : 3,337 • <U) 194,214 (83.1) 6,863 (2,9) 32,630 (14.0) 233,707 (100.0) 1966 2,305 O.o) 9,195 (3.9) 22 158,274 (67.4) 15,148 (6.5) .4,232 (1.8) 189,175 (80.6) 6,074 (2.6) 39,429 (16.8) 234,678 (100.0) 1967 1,366 (0.6) 8,491 (4.0) 16 137,416 (64.6) 13,568 . (6.4) 2,932 (1.4) 164,481 (77.4) 5,676 (2.7) 42,405 (19.9) 212,562 (100.0) 1968 687 (0.3). 7,119 (3.3) 12 159,044 (72.^) 8,8:5.9 (4.1) 3,611 (1.7) 179,392 (82.1) 4,020 (1.8) 35,049 (16.0) 218,461 (100.0) 1969 4,680 (1.8) 11,111 (4.3) 10 176,532 (67.2) 16,Q,23 (6.1) • 7,942 1 (3.0) 216,298 (82.3) 5,100 (1.9) 41,303 (15.7) 262,701 (100.0) 1970 3,936 (1.5). 9,082 (3.5) 17 189,524 (72.2) 20,3.08 (7,7) i' 10,743 (4.1) 233,610 (89.0) 2,720 (1.0) 26,415 (10.0) 262,745 (100.0) 1971 3,214 (1.1) 10,644 (3.6) 21 222,220 (76.1) 23,957 (8.2) I 8,302 (2.8) 268,358 (91.7) 2,056 (0.7) 22,146 (7.6) 292,561 (100.0) 55-1966 - 1971 2,698 9,274 (1.1) (3.8) 1961 - 1971 2,293 7,604 (0.9) (3.2) 16 173,835 16,310 (70.4) (6.6) 22 173,098 14,000 (71.8) (5.8) 1. Source: B.C. Forest Service Annual Report, 1961 -1971. 6,'294 208,552 4,274 34,458 247,284 (2.5) (84.4) (1.7) (13.9) (100.0) 4,950 202,035 5,451 33,627 241,113 (2.1) (83.8) (2.3) (13.9) (100.0) 56 The timbershed of the study region, defined on the basis of chip and log flows in 1965 and 1971, include the area of fourteen PSYU's and four TFL's. The PSYU's include the following: 1. Adams 2. Barriere 3. Big Bar 4. Botanie 5. Eagle 6. Kamloops 7. Nehalliston 8. Nicola 9. Niskonlith 10. North Thompson 11. Raft 12. Salmon Arm 13. Shuswap 14. Yalakom Al l of these PSYU's, except for approximately 70% of the Big Bar PSYU, are currently in the Kamloops Forest D is t r i c t . A l l , except for the Big Bar, Kamloops and Yalakom PSYU's, are in PHA No. 2. Also included in the timbershed are Tree Farm Licences No. 16, No. 18, No. 33 and No. 35 which are respectively held by Crown Zellerbach Canada Ltd. (formerly by Pondosa Pine Lumber Co. L td . ] , Clearwater Timber Products L td . , Federated Co-operatives Ltd. (formerly by 57 Shuswap Timber Ltd.) and Weyerhaeuser Canada Ltd. (formerly by B.C. inter ior Sawmills Ltd. ) . 1. Delineating the Timbershed The community timbersheds can be defined in terms of chip and log flows. It is not a simple matter to define log and chip markets in terms of economical hauling distances, because what is considered to be an economical hauling distance varies among firms. Logs may be hauled by truck as far as 150 miles or more. Such long haul distances may be considered unacceptable by some firms, but acceptable to others i f they have no closer timber supplies. A method which impl ic i t ly takes economical hauling distances into account is to define a timbershed for a given forest products manufacturing centre by physical log and chip flows. In this way, the timbershed is directly a function of the timber supply which the firms at each centre control. The chips produced from sawmill and plywood residues from logs harvested in PSYU's within PHA No. 2, and from TFL No. 's 18 and 35 are purchased by Weyerhaeuser Canada Ltd. at Kamloops (Munro, interview* 1973). Chips in excess of those used in the pulpmill are sold by Weyerhaeuser to mil ls outside the region. Chips which are produced from wood harvested in the Big Bar and Yalakom PSYU's are purchased by pulp mil ls outside the region. Although PHA No. 2 includes the Spallumcheen and Barton H i l l PSYU's, these were not included in the study region timbershed. Logs from these PSYU's are used in mil l centres which can be considered to be part of an 58 economic region served by Vernon and Kelowna. The chip market, therefore, while i t has an important role in the forest economy of the study region, was not used to the same extent as log flows to sawmills to define the study region timbershed. Log flows were delineated for 1965 and 1971 by assigning the cutting rights and quotas in TFL's and PSYU's of individual operator's sawmills. It was assumed that each sawmill operator would u t i l i ze his own quota in his nearest sawmill. The lumber industry accounts for the largest portion of the Province's timber harvest (Table 2). The proportion of the annual harvest which is used in sawmilling in the region is probably larger than indicated for Brit ish Columbia, since a l l of the wood supply for the Kamloops pulpmill consists of chips manufactured from sawmill, and veneer and plywood residues (Dept. of Industrial Development, Trade, and Commerce, 1970). This leaves only approximately 10% of the annual harvest in the region for use- in other forest industries. The sawmills and their timber supplies were compiled by Ranger Distr icts (1971 boundaries) (Appendix I, Tables 1 and 2). Groups of sawmills in Ranger Distr icts were further compiled as sawmilling centres (Tables 3 and 4) and their major timber flows charted (Figures 7 and 8). PSYU's and TFL's were included in the study region i f they were situated within the study region or i f most of their allowable annual cut was assigned to study region sawmilling centres., Portions of the allowable annual cut of PSYU's which were not assigned to regional sawmilling centres include quo'tas~heTd by TABLE 2. Estimated distribution of Brit ish Columbia's timber harvest, 1965 to 1971 ' . Industry Percentage Distribution by Year 1965 1966 1967 1968 1969 1970 1971 Lumber 73 75 72 73 76 76 77 Pulp 16.5 15 16 15 14 14 13 Veneer and Plywood 6.6 6 •7 7 6 6 6 Shingle 2.0 2 2 2 2 2 2 Minor Products -Poles, P i l ings , Posts etc . 1.3 1 1 1 1 1 1 Log Export 0.6 T 1 2 1 2 1 1. Source: Department of Industrial Development, Trade, and Commerce, 1970, 1972c. 60 TABLE 3. Timbersheds of sawmilling centres, December, 1965^. PSYU TFL Birch Island Barriere Kamloops Chase Salmon Arm Sicamous . Li l looet Clinton Ashcroft Merritt Blue River 100 Mile House R.D.2. R.D.3. R.D.4. R.D.5. R.D.6. R.D.7. ; . R.D.8. R.D.12. R.D.16. R.D.17. R.D.18. R.D.24. (Part) M cf per year (% of AAC of PSYU or TFL) . 1. Adams 2. Barriere 3. Big Bar 4. Botanie 5. Eagle 6. Kamloops Region 7. Nehalliston 8. Nicola 9. Niskonlith 10. North Thompson 11. Raft 12. Salmon Arm 13. Shuswap 668 (12.72) 4,082 (77.75) 2,466 (49.32) 3,693 (83.93) 1,418 (70.90) 116 (4.94) 81 (1.47) 337 (7.66) 973 (18.74) 8,625 (89.75) 491 (24.55) 1,657 467 (70.51) (19.87) 1,844 (33.53) 931 (18.62) 934 (14.37) 30 (1.50) 110 (4.68) 1,506 (71.71) 16 3,546 (0.25) (54.55) 1,641 (82.05) 3,183 (45.22) 44 (0.88) 2,808 (39.89) 3,909 (78.18) 177 (1.84) 48 (0.96) 339 (3.53) 6,870 (92.75) 3,475 (63.18) 885 (17.70) 651 (9.25) 22 (0.44) 61 14. Yalakom ; J.g* Subtotals 3,134 5,308 15,792 4,565 5,192 1,641 1 » 8 2 4 ^,227 6,894 7,275 4,360 673 (4.66) (7.90) (23150) (6.79) (7.73) (2.44) ( 2 * 7 D ( 4 - 8 0 ) H 0 - 2 6 ) 0 ° - 8 0 ) < 6 - 4 9 ) O.OO) TFL 16 1,500 TFL 18 2,500 TFL 33 385 TFL 35 1,800 Subtotals 5,634 5,308 19,092 4,565 5,]92 2,026 1,824 3,227 6,894 7,257 4,360 673 Imports Lac La Hache Similkameen SI 160 1,151 Total Supply 5,634 5,308 19,092 4,565 5,192 2,026 1.825 3,227 6,894 7»417 4,360 1,824 1. Source: Appendix I, Table 1. i i i TABLE 4. Summary of the distribution of timber supplies of timbershed PSYU's, December, 1965 . Quota Distributed Quota Exported Quota Unassigned Forest Service Reserve Total AAC PSYU M cf per year (% of AAC of PSYU) 1. Adams 4,750 (90.47) 150 (2.86) 350 (6.67) 5,250 (100.00) 2. Barriere 4,030 (91.59) 370 (8.41) 4,400 (100.00) 3. Big Bar 6,642 (94.36) 397 (5.64) 7,039 (100.00) 4. Botanie 4,996 (99.92) 4 (0.08). 5,000 (100.00) 5. Eagle 1,671 (83.55) 129 (6.45) 200 (10.00) 2,000 (100.00) 6. Kamloops Region 9,141 (95.12) 392 (4.08) 77 (0.80) 9,610 (100.00) 7. Nehalliston 1,909 (95.45) 81 (4.05) 10 (0.50) 2,000 (100.00) 8. Nicola 6,870 (92.75) 270 (3.65) 267 (3.60) 7,407 . (100.00) 9. Niskonlith 2,350 (100.00) 2,350 (100.00) 10. North Thompson 5,400 (98.18) 100 . (1.82) 5,500 (100.00) 11. Raft 4,282 (85.64) 518 (10.36) 200 (4.00) 5,000 (100.00) 12. Salmon Arm 1,506 (71.71) 397 (18.91) 167 (7.95) 30 (1.43) 2,100 (100.00) 13. Shuswap 4,496 (69.17) 329 (5.06) 900 (13.85) 775 (11.92) 6,500 (100.00) 14. Yalakom 1,824 (59.80) 1,173 (38.46) 53 (1.74) 3,050 (100.00) Totals 59,867 (89.07) 2,565 (3.82) 2,686 (4.00) 2,088 (3.11) 67,206 (100.00) 1. Sources: Appendix I, Table 1 and Kamloops Forest Distr ict Annual Report, 1965. 6 4 FIGURE 7 Timber flows in the study region-1965. LEGEND Scale Approx30 Miles Per Inch Study Region Boundary Forest District Boundaries Unit Boundaries Tree Farm Licences Major Provincial Parks III Ill Pubic Sustained Yield Units 1 Adams 2 Ashnola 3 Barnere 4 Barton Hill 5 Big Bar 6 Botanie 7 Chilko 8 Eagle 9 Kamloops 10 Lac La Hache 11 Nehalliston 12 Nicola 13 Niskonlith 14 North Thompson 15 Okanagan 16 Quesnel Lake 17 Raft 18 Salmon Arm 19 Shuswap 20 Similkameen 21 Spallumcheen 22 Stum 23 Williams Lake 24 Yalakom Tree Farm Licences Within Study Region 25 T. F. L. No. 16 27 T. F. L. No. 3 3 26 T F L No 18 28 T.F. L . N o . 3 5 Combined Daily Capacity Of Sawmill Centres 5 0 - 1 0 0 Mfbm. O 1 0 1 - 2 0 0 Mfbm. o Timber Flows 500 - 3 0 0 0 Mcf . 3001 - 6 0 0 0 Mcf. Over 6001 Mcf. 201 - 3 0 0 Mfbm Over 301 Mfbm. o O 6 5 FIGURE 8. Timber flows in the study region-1971. LEGEND Scale Approx30 Miles Per Inch Study Region Boundary Forest District Boundaries Unit Boundaries Tree Farm Licences Major Provincial Parks Pubic Sustained Yield Units 1 Adams 2 Ashnola 3 Barriere 4 Barton Hill 5 Big Bar 6 Botanie 7 Chilko 8 Eagle 9 Kamloops 10 Lac La Hache 11 Nehalliston 12 Nicola 13 Niskonlith 14 North Thompson 15 Okanagan 16 Quesnel Lake 17 Raft 18 Salmon Arm 19 Shuswap 20 Similkameen 21 Spallumcheen 22 Stum 23 Williams Lake 24 Yalakom Tree Farm Licences Within Study Region 25 T. F. L. No. 16 27 T. F. L. No. 33 26 T F L No 18 28 T.F.L. No.35 Combined Daily Capacity Of Sawmill Centres 5O-100 Mfbm. O 101 - 200 Mfbm. o Timber Flows 500 - 3000 Mcf. 3001 - 6000 Mcf. Over 6001 Mcf. 201 - 300 Mfbm Over 301 Mfbm, o 66 operators outside the study region, quotas which could not be assigned to any indiv idual sawmi l l , and volumes included in Forest Service Reserve.^ Just as timber was "exported" from the timbershed to m i l l s outside the study region, some sawmills inside the study region "imported" some of the i r timber from PSYU's s i tuated outside the study region timbershed. Timber supplies from sources other than quotas (Timber Sales) and TFL allowable annual cuts were not assigned to par t i cu la r sawmills fo r several reasons. F i r s t l y , ownership of these tenures i s d i f f i c u l t to determine. An attempt to determine the ownership of Timber Licences, Timber Berths and Crown Grants with in the Kamloops Forest D i s t r i c t was unsuccessful. Secondly, even i f ownership of these forest lands could be determined the destination of timber harvested from these lands would not be cer ta in . - Some timber from private land and Farm Woodlots is probably sold on the open market to m i l l s wi th in hauling distance. Consequently, only forest p o l i c i e s which w i l l not a f fec t these other timber sources can be studied. The pol icy which w i l l be studied was assumed not to a f fec t these other timber sources s i g n i f i c a n t l y . (a) The 1965 Timbershed In 1965, 59,867 thousands of cubic feet ( M cf) of quota from the PSYU's within the study region timbershed.were, assigned to study region sawmil ls , 2565 M cf were "exported," 2,088 M cf were included in the Forest Service Reserve, and 2,686 M cf were not assigned 67 to any sawmill (Tables 3 and 4). The quota which was not accounted for amounted to only 4% of the total PSYU allowable annual cut in the timbershed. Most of the individual quotas which were unaccounted for were small and were probably held by operators with inactive sawmills, operators who were not l i s ted by the B.C. Forest Service, operators without sawmills, pole yard operators, or operators l is ted by a name different from that which their sawmills are held. Mi l ls outside the study region accounted for a signif icant 381 of the total allowable annual cut from the Yalakom PSYU. This PSYU was included in the study region for two reasons. F i r s t l y , i t was situated within the study, as defined in terms of.data collection and functions, and secondly, over 60% of the allowable annual cut was held by sawmill operators within the study region. The four TFL's accounted for 6,185 M cf of timber per year, which brought the annual timber supply to 66,052 M cf. A l l of the allowable annual cut from TFL's was assigned to licensee's nearest sawmills, a l l of which were within the study region.-Additional timber quotas were held by the regional sawmill operators in the Lac La Hache and Similkameen PSYU's which are outside the region. These PSYU's added 1,151 M cf and 160 M cf , respectively, to the region's annual timber supply. Other timber supplies from outside the timbershed may have come from the Nelson Forest Dist r ic t for sawmills in the Salmon Arm-Shuswap Lake Area, and from the Vancouver Forest Distr ict for sawmills in the Merritt and Li l looet Areas. There was a total of 160 sawmills with a combined capacity of 3,408 thousand board feet (M fbm) per 8-hour shi f t (Table 5). TABLE 5. Sawmill capacity by sawmilling centres, December, 1965 . Active Sawmills Inactive Sawmills With Quotas Without Quotas Tota' Sawmilling Centres M fbm per 8-(number of •hour shi f t sawmills) R.D.2. Birch Island 265 (2) 20 (2) _ 285 (4) R.D.3. Barriere 125 (1) 105 (5) 10 (1) 240 (7) R.D.4. Kamloops 531 (12) 99 (10) 10 (2) 640 (24) R.D.5. Chase 135 (2) 62 (12) 29 (4) 226 (18) R.D.6. Salmon Arm 101 (5) 75 (16) 7 (2) 183 (23) R.D.7. Sicamous 52 (2) 108 (5) 14 (7) 174 (14) R.D.8. L i l looet 155 C4). 71 (7) 25 (3) 251 (14) R.D.12. Clinton 122 (9) 155 (5) 20 (2) 297 (16) R.D.16. Ashcroft 80 (2) 170 (12) 250 (14) R.D.17. Merritt 325 (7) 220 (10) -545 (17) R.D.18. Blue River 220 (4) 37 (3) - 257 (7) R.D.24. 100-Mile House (Part) 60 (2) - -60 (2) Totals 2,171 (52) 1,122 (87) 115 (21) 3,408 (160) 1. Source: Appendix I, Table 1, and Kamloops Forest Distr ict Annual Report, 1965. 70 Of these, 21 sawmills with a capacity of 115 M fbm per 8-hour shi f t were inactive during 1965. There were 139 active sawmills with a capacity of 3,293 M fbm per 8-hour sh i f t . Of these active sawmills,' only 52 with a capacity of 2,17-1 M fbm per 8-hour s h i f t , or 38% of the active sawmills with 66% of the active capacity, were assigned cutting rights in the timbershed. The remaining active sawmills may have cut private timber, purchased logs, or account for the unassigned cutting rights in PSYU's in the timbershed. The data indicate" that there were a large number of marginal and portable sawmills in the study region in 1965 which accounted for an i n s i g n i f i -cant portion of timber sawn into lumber. A comparison of the volume of timber supplies from quotas and TFL's with reported sawmill production indicates that sawmills in the study region obtained a large proportion of their log supplies from other sources. The B.C. Forest Service (1965) reported that the total lumber production in the study region was 553.3 mill ions of board feet (MM fbm). The allowable annual cuts of quota holders and TFL holders, which totaled 67,363 M cf, were suff icient to produce only 404.2 MM fbm of lumber, assuming a lumber recovery factor of 6 board feet of lumber per cubic foot of log input. This suggests that approximately 150 MM fbm or 27% of the 1965 lumber production was sawn from logs which were harvested on forest lands other than Timber Sales and TFL's. No degree of certainty can be attributed to this estimate, however. Comparisons of production data for some sawmills which were reported by trade journals indicate that Forest Service production data may not be rel iable and, perhaps, understate 71 lumber production. Unfortunately, the trade journals did not report production information for a l l the sawmills in the region such that a complete comparison of data could not be made. (b) The 1971 Timbershed In 1971, 79,542 M cf of quota volume from the PSYU's within the study region timbershed were assigned to sawmills within the study region, 4,873 M cf were "exported," 3,052 M cf were included in the Forest Service Reserve, and 1,428 M cf were unaccounted for (Tables 6 and 7). The proportion of quota assigned to sawmills within the study region and to the Forest Service Reserve remained v i r tual ly unchanged from 1965, but the proportion "exported" increased from less than 4% in 1965 to more than 5%, while the proportion unaccounted for declined from 4% in 1965 to less than 2%. The increase in the proportion of "exported" timber was due to some sawmilling firms outside the region acquiring smaller firms along with their quotas which were inside the region and then phasing out the acquired mi l l s . A notable increase in "exports" occurred in the Eagle PSYU, while a similarly notable decrease occurred in the Yalakom PSYU. The absolute increase in the annual timber supply of the region from PSYU's was primarily due to the implementation of the B.C. Forest Service's close ut i l i zat ion policy which allowed operators to increase their annual cutting rights by up to one-third of their original quota, subject to certain conditions. The increase in 72 TABLE 6. Timbersheds of sawmilling centres, December, 1971 1. PSYU TFL Birch Island R.D.2. 1. Adams 2. Barriere 3. Big Bar 4. Botanie 5. Eagle 6. Kamloops 7. Nehalliston 8. Nicola 9. Niskonlith Id. North Thompson 11. Raft 12. Salmon Arm Barriere R.D.3. Kamloops Chase. Salmon Arm Sicarnous . L i l looet R.D.4. R.D.5. R.D.6. R,D>7. • R.D.8. M cf per year {% of AAC of PSYU or TFL) 13, Shuswap 1,091 (15.09) 3,841 (51.32). 6,419 (.89.04) 5,172 (86.27) 2,128 (65.64) 32 (0.96) • 108 (1.44) - 6 (0,08) 483 (8.06) 9,471 (97.57) 593 Cl 8.291 2,154. (64.76) 2,484 (33,19) 5,876 (81.29) 515 08.931 625 392 (18.79) (11,79) . . 2 2,184 (0,0.6) (66,61). 71 7,279 (0.81) (82,72) . 67 (.2.46) Clinton Ashcroft Merritt Blue River R.D.12. R.D.16. R.D.17, R.D.18. 100 Mile House R.D.24 (Part) 3,183 (37.23) 44 (0.64) 3,744 (43.79) 5,212 (75.61) 1,361 (19.74) 117 0 .21) 9,632 (.94,81) (0,41) 1,207 04.12) 22 (0.32) 73 14. Yalakom Subtotals 1 1 , 3 5 1 7 , 4 4 6 1 5 , 1 8 5 6 , 5 7 4 1 0 , 3 7 0 67 ( 1 2 . 7 7 ) ( 8 . 3 8 ) ( 1 7 . 0 8 ) ( 7 . 4 0 ) ( 1 1 . 6 7 ) ( 0 . 0 8 ) TFL 16 2 , 3 0 0 TFL 18 5 , 8 0 0 TFL 33 788 TFL 35 3 , 5 0 0 Subtotals 1 7 , 1 5 1 7 , 4 4 6 5 , 8 0 0 6 , 5 7 4 1 0 , 3 7 0 855 Imports Lac La Hache Similkameen Total Supply 1 7 , 1 5 1 7 , 4 4 6 ' 2 0 , 9 8 6 6 , 5 7 4 1 0 . 3 7 0 855 1 . Source; Appendix I, Table 2 . 3 , 9 9 6 ( 9 2 . 8 7 ) 3 , 9 9 6 3 , 2 2 7 8 , 9 5 6 11,no 3 1 1 o ? q ( 4 . 5 0 ) ( 3 . 6 3 ) ( 1 0 . 0 7 ) ( 1 2 . 5 0 ) ( 0 . 0 3 ) ( 1 . 3 8 ) 3 , 9 9 6 3 , 2 2 7 8 , 9 5 6 1 1 , 1 1 0 31 1 , 2 2 9 1 , 4 3 5 2 , 6 8 0 3 , 9 9 6 3 , 2 2 7 8 , 9 5 6 1 3 , 7 9 0 31 2 , 6 6 4 TABLE 7. Summary of the distribution of timber supplies of timbershed PSYU's, December, 1971 . Quota Quota Quota Forest Total Distributed Exported Unassigned Service Reserve AAC M cf per year (% of AAC of PSYU) 1. Adams 6,967 (96.39) 261 (3.61) 7,228 (100.00) 2. Barriere 5,655 (94.33) 100 (1.67) 21 (0.35) 219 (3.65) 5,995 (100.00) 3. Big Bar 8,134 (95.13) 64 (0.75) 352 (4.12) 8,550 (100.00) 4. Botanie 6,639 (96.32) 4 (0.05) 250 (3.63) 6,893 (100.00) 5. Eagle 582 (21.39) 1,886 (69.31) 149 (5.48) 104 (3.82) 2,721 (100.00) 6. Kamloops 9,588 (98.77) 119 (1.23) 9,707 (100.00) 7. Nehalliston 2,721 (83.93) 400 (12.34) 4 (0.12) 117 (3.61) 3,242 (100.00) 8. Nicola 9,632 (94.81) 160 (1.58) 367 (3.61) 10,159 (100.00) 9. Niskonlith 3,203 (96.30) 3 (0.09) 120 (3.61) 3,326 (100.00) 10. North Thompson 6,464 (86.37) 707 (9.46) 32 (0.43) 280 (3.74) 7,484 (100.00) n . Raft 6,452 (89.12) 505 (7.01) 18 (0.25) 261 (3.62) 7,209 (100.00) 12. Salmon Arm 2,186 (66.67) 596 (18.17) 376 (11.47) 121 (3.69) 3,279 (100.00) 13. Shuswap 7,350 (83.52) 515 (5.86) 611 (6.94) 324 (3.68) 8,800 (100.00) 14. Yalakom 3,996 (92.87) 150 (3.48) 157 (3.65) 4,303 (100.00) Totals 79,542 4,873 1,428 3,052 88,895 (89.48) (5.48) (1.61) (3.43) (100.00) 1. Sources: Appendix I, Table 2 and Kamloops Forest D is t r ic t , "List of Established Licencees as of January 1st, 1972;" and "Sawmills and Planer Mi l ls by Ranger D is t r ic ts , " March 1st, 1972. 76 timber supply from TFL's increased by the f u l l amount allowed by the revised annual allowable cut calculated to the close ut i l i zat ion standard. The timber supply which was imported from the Lac La Hache and Similkameen PSYU's also increased. The total annual timber supply which was assigned to sawmills in the study region in 1971 was 96,046 M c f , an increase of 28,683 M cf or 43% over 1965. While the timber supply increased by 1971, the number of active sawmills declined by 25% below the 1965 leve l , and their total capacity increased by almost 19% (Table 8). In 1971, there were 90 active sawmills with a combined capacity of 2,773 M fbm per 8-hour sh i f t . Of these, 44 sawmills with a capacity of 2,439 M fbm per 8-hour sh i f t , or 50% of the active sawmills with 88% of the capacity, were assigned annual cutting rights within the timbershed. The number of small mil ls without quotas declined by almost 50% below the 1965 level . These data indicate that the number of sawmills was declining while their average size was increasing. THE ECONOMY OF THE STUDY REGION The value of the employment multipl ier for the study region was determined using the location quotient technique with employment as the unit of measurement of regional economic act iv i ty and Brit ish Columbia as the benchmark economy. The location quotient using employment as the unit of measurement was used for reasons of data l imitations. Br i t ish Columbia was chosen to be the benchmark economy TABLE 8. Sawmill capacity by sawmilling centres, December, 1971 » Active Sawmills With Quotas Without Quotas Totals Sawmilling Centres 1 : " • M fbm per 8-hour sh i f t (number of sawmills) R.D.2. Birch Island 430 30 460 (3) (2) (5) R.D.3. Barriere 200 27 227 (2) (7) (9) R.D.4. Kamloops 389 96 485 (5) (13) (18) R.D.5. Chase 203 23 226 (8) (5) (13) R.D.6. Salmon Arm 331 51 382 15) (9) (14) R.D.7. Sicamous 65 9 74 (2) (3) (5) R.D.8. L i l looet 110 13 123 (1) (3) • (4) R.D.12. Clinton 91 15 106 (6) (2) (8) R.D.16. Ashcroft 100 (1) 60 (2) 160 (3) R.D.17. Merritt 375 (14) 10 (1) 385 (5) R.D.18. Blue River 80 (4) -80 (4) R.D.24. 100-Mile House (Part) 65 (2) -65 (2) Totals 2,439 (43) 334 (47) 2,773 (90) 1. Sources: Appendix I, Table 2 and Kamloops Forest D is t r ic t , "List of established Licensees as of January 1st, 1972;" and "Sawmills and Planer Mi l ls by Ranger D is t r ic ts" , March 1, 1972. 79 in order to satisfy the assumptions of the location quotient technique that the benchmark and study region have similar consumption patterns and production functions for both intermediate and f inal products. It was assumed that Bri t ish Columbia was a more appropriate benchmark than Canada or a group of provinces. The steps followed in determining the regional employment multipl ier are as follows: 1. Compilation of employment by industry for the study region; 2. Compilation of employment by industry for the benchmark, and adjustment of these data to satisfy the benchmark self -suff ic iency assumption; 3. Computation of the 1961 regional employment mult ip l ier ; 4. Evaluation of the resulting 1961 regional employment mult ip l ier ; and 5. Estimation of the value of the regional employment mult ipl ier in 1966. The Study Region Compilation of employment by industry for the study region (Table 9) involved two steps. F i r s t l y , the employment by industry data for 1961 were extracted from the Index and other sources for Region Six. Secondly, the corresponding data for the Williams Lake-Chilcotin Area were subtracted from that of Region Six to arrive at data for the study region. The data which were used to estimate employment by industry for Region Six were actually labour force by industry for 1961 Census Division Six. 80 TABLE 9. Employment by industry in the study region,.1961. 1960 Industrial Divisions S. I .C. Major Groups* Codes Three Digit Industries 002-021 031, 039 041-047 , 051-099 101-109 286-289 151-249 271-274 251 254 251,254 Agriculture Forestry Fishing and Trapping Mines (including Mi l l i ng ) , Quaries, and Oil Wells Manufacturing Industries (Non-Durable Goods Manufacturing Industries excluding Paper and A l l ied Industries) Food and Beverage Industries Pr int ing, Publishing and A l l ied Industries Other Non-Durable Goods Manufacturing Industries (Durable Goods Manufacturing Industries) (Forest Products Industries) Paper and A l l ied Industries Wood Industries Sawmills (excluding. Shingle Mi l ls ) Sash, Door and Planing Mi l ls (Sawmilling) 1961 Census Division 6 No. of Persons (1) Percent of Total 2,340^ 1,540Z 17 698 10.55 6.95 0.08 3.15 4,199 18.95 374 71 1.69 0.32 103 200 0.46 0.91 3,825 3,789 17.26 17.10 4 3,430 3204 3,789 Cariboo Dist Regional r i c t Quesnel Area of Region 8 Williams Lake -ChiIcotin Area of Region 6 Study Region No. of Persons (2) Percent of total No. of Persons No. of Persons No. of Persons Percent of Total 865 : 9.71 404 461 1,879 10.57 689 7.74 408 281 1,259 17 7.07 0.01 175 1.97 155 20 678 3.81 2,812 31.57 1,477 1,335 2,864 333 j . 3.73 157 176 198 1.11 2,479 27.84 1,320 1,159 2,666 2,641 14.89 81 252 251, 256-259 Veneer and Plywood Mi l ls Other Wood Industries 4 39 0.18 '.< 261-268, 291-399 (Non-Forest Products Industries) , 36 0.16 i 1 25 0.14 404-421 Construction Industries 1,302 5.87 419 .j 4.71 197 111 1,080 6.08 501-579 Transportation, Communications, and other U t i l i t i e s 3,069 13.84 833 ;l . 9.36 394 439 2,630 14.82 602-631 642-699 Trade Whole Trade Retail Trade 2,657 526 2,131 11.98 2.37 9.61 1,023 ;! 11.49 483 540 . 2,117 419 1,698 11.92 2.36 9.56 701-737 Finance, Insurance and Real Estate 408 1.84 126 | 1.42 59 67 341 1.92 801-864 Community, Business and Personal Service Industries 4,091 18.45 . 1,449 16.27 684 765 3,326 18.78 902-991 Public Administration and Defence 1,084 4.89 5 1 3 ; 5.76 <s 242 271 813 4*57 999 Industry Unspecified or Undefined 766 3.45 ' 1 766 4.31 Totals 22,171 100.00 8,904 100.0.0 4,503 4,401 17,770 100.00 Population 24,342 11,479 12,862 i 1. Bureau of Economics and S ta t i s t i cs , Regional Index of Br i t ish Columbia, 1966, !i Dept. of Industrial Development, Trade and Commerce, V ictor ia , B.C., ,1966, pp. 359-402.. 2. H.C. Davis and G. Hainsworth, "The Cariboo Regional Dist r ic t Development Report",;; Canadian Environment Sciences, Nov. 1970, Table 1. j 3. Stat ist ics Canada, 96-540 \ 4. Estimated breakdown of "Other Manufacturing" which was not disaggregated in ( 1 ) . 82 The stat is t ics include a l l persons 15 years of age and over, who were reported as having a job of any kind, either part-time or fu l l - t ime (even i f they were not at work) or were reported as looking for work, during the week prior to enumeration. (Dept. of Industrial Development, Trade, and Commerce, 1966, p. 540) These data w i l l overstate employment of Region Six in some industries since there were persons unemployed in 1961. The index also reported B.C. Forest Service data for Forestry and Wood Industries. Supple-mentary data were obtained from the 1961 Census of Canada for Agriculture. The industrial categories were kept as detailed as possible to forestal l underestimating the economic base of the study region. Employment by industry data were compiled by 1960 S.I .C. categories (Statistics Canada, 1970). Data for the Manufacturing Industries Division were regrouped into several categories. F i r s t , the Manu-facturing Industries were regrouped into "non-Durable Goods Manu-facturing Industries" and "Durable Goods Manufacturing Industries." The "Non-Durable Goods Manufacturing Industries" include establishments which provide perishable goods, which are goods which are perishable or replaced over short periods of time, for example, food, clothing and newspapers. Although i ts products are generally regarded as non-durables, the Paper and A l l ied Industries Major Group was included in the "Durable Goods Manufacturing Industries" so that i t could be included with the Wood Industries Major Group into a category referred to as "Forest Products Industries." The "Durable Goods Manufacturing Industries" were further divided into "Forest Products Industries" and "Non-Forest Products Industries." The reason for aggregating the Wood Industries and Paper and Al l ied Industries into one category, 83 even though data were available for separate industries for Region Six, was to allow for change in the forest products industry structure over time. The multipl ier was derived from 1961 data and was to be applied to a projection of change in the forest industry employment using 1966 data. In 1961, the Veneer and Plywood Mil ls and Paper and A l l ied Industries did not exist in the region. However, by 1963, 65 persons were employed in Region Six in Veneer and Plywood M i l l s , and by 1966, 200 persons were employed in the Paper and A l l ied Industries. Therefore, the forest product industries were a l l grouped into one category. Labour force data for the Williams Lake-Chilectin Area were given in the Index only for the Town of Williams Lake by occupation categories and not by industries, and for Forestry and Wood Industries. Furthermore, the population of the Williams Lake-Chilcotin Area is widely dispersed such that data for Williams Lake were not suitable for estimating the required s t a t i s t i c s . Therefore, an indirect method of estimating employment by industry s tat is t ics for the Area was adopted. Estimates of employment by industry in 1961 in the Cariboo Regional D is t r i c t , which is almost equivalent to the Williams Lake-' Chilcotin Area plus the Quesnel Area of Region Eight were available (Davis and Hainsworth, 1970). Assuming that the distribution of employment among industries was similar in the Quesnel and Williams Lake-Chilcotin Areas, employment by industry of the Cariboo Regional Distr ict was apportioned between the two Areas on the basis of their 1961 populations. The results were adjusted where suitable estimates 84 and data were reported in the Index. The estimates of employment by industry for the Williams Lake-Chilcotin Area could then be subtracted from corresponding data for Region Six . The resulting s tat is t ics for the study region were more aggregated than those for Region Six in the Manufacturing Industries and in Trade. The ten Manufacturing Industries categories permitted by data for Region Six were reduced to "Non-Durable Goods Manufacturing Industries" and "Durable Goods Manufacturing Industries." The "Durable Goods Manufacturing Industries" employment was disaggregated into "Forest Products" and "Non Forest Products Industries" by assuming that same distribution of employment prevailed in the study region as in Region Six. Trade employment was similarly disaggregated into Retail Trade and Wholesale Trade. The. employment in "Non-Durable Goods Manufacturing Industries" was too small to disaggregate. The Benchmark Economy The purpose of this section is to determine the distribution of employment by industry which was required for Br i t ish Columbia to be se l f -suff icient in the production of a l l the goods and services i t consumed in 1961 (Appendix I I ) . The following sample calculation demonstrates how se l f - suf f ic ient employment levels were determined for each industry: Given for the Food and Beverage Industries Major Group in 1961 are the following: Sell ing value of factory shipments $399,777,000 Value of exports $ 38,000,000 Value of imports $ 63,527,000 Actual number of persons employed 15,444 85 Then the sel l ing value of consumption of Food and Beverages Industries products in 1961 was $425,304,000, the number workers required to produce domestically $1,000 of Food and Beverages Industries products (assuming constant returns to scale) was 0.0386. Therefore, 0.0386 persons per $1,000 sales x $425,304,000 = 16,417 persons were required for Br i t ish Columbia to be se l f - suf f ic ient in the production of Food and Beverage Industries products. This calculation was performed for a l l commodity producing industries. The degree of aggregation which was used in compiling the economic data for Br i t ish Columbia depended upon the form of sales and employment data available, and also upon the form of external commodity trade data. The industrial categories were arranged to conform with those in Table 9. The sales and employment by industry data were obtained from the Manufacturing Industries of Canada, Section F, Br i t ish Columbia,  Yukon and Northwest Terr i tor ies, 1961, Cat. No. 31-208. In this annual publication, employees include a l l executives, supervisors, o f f i c i a l s , working owners and partners, and production and related workers. Production workers data are reported by months. The number of production workers s tat is t ics are averages for the year which are calculated by summing the monthly figures and dividing by twelve. Value of sales and employment s tat is t ics for the primary industries were obtained from various sources. The employment s tat is t ics for the non-commodity producing industries were obtained from the 1961  Census of Canada and include only wage earners. These data, unlike those for the Manufacturing Industries, are similar to those reported in the Index for Region Six. 86 F inal ly , the s tat is t ics for commodity exports and imports of Br i t ish Columbia for 1961 were obtained from estimates made by Peters (1967) in a M.A. thesis. His estimates are the most complete ones currently available. It is d i f f i c u l t to express the magnitude of his estimating error with any degree of confidence. However, Peters believed that, based on the experience gained in his analysis, that the exports and imports were understated by 5% and 15% respectively. Value of the 1961 Regional Employment Mult ipl ier The regional employment multipl ier for 1961 was calculated using the s tat is t ics of Table 9 and Appendix II (Table 10). F i r s t l y , the percentage distributions of employment among industries were calculated for both the benchmark and study region economies. Secondly, the basic employment was segregated from the service portion. For example, Br i t ish Columbia would have been se l f - suf f ic ient in the production of a l l goods and services in 1961 i f 4.03% of i t s labour force has been employed in Agriculture. Of the total labour force in the study region in 1961, 10.57% were employed in Agriculture. Therefore, the study region would have been more than se l f - suf f ic ient in Agriculture production, such that 10.57 - 4.03% or 6.54% of i ts labour force, i f fu l l y employed, would have been producing for markets outside the study region. This calculation was repeated for a l l industries. The total percentage of basic employment in the study region in 1961 was 32.75%, giving a mult ipl ier of 100.00 * 32.75% or 3.05. This mult ipl ier indicated that for every new basic worker employed in the study region, a total of 3.05 new jobs w i l l be TABLE 10. Calculation of employment mult ipl ier , 1961'. B.C. Self-Sufficient Employment-1961 Study Region Employment 1961 inaustries No. of Persons Percent of Total No. of Persons Percent of Total Percent Basic Percent Service Base Ratio Agriculture 22,388 4.03 1,879 10.57 6.54 4.03 0.62 Fores try 20,103 3.62 1,259 7.07 3.45 3.62 0.49 Fishing and Trapping 16,805 3.03 17 0.01 - - 0.01 -Mines, Quaries, and Oil Wells 5,176 0.93 678 3.81 2.88 0.93 ;0.76 Non-Durable Goods Manufacturing 41,719 7.51 198 1.11 - 1.11 -Forest Products 9,715 • 1.75 2,641 14.89 13.14 1.75 0.88 Non-Forest Products 73,599 13.26 25 0.14 - 0.14 -Construction 27,507 4.95 1,080 6.08 1.13 4.95 0.19 Transportation, Communication and Other U t i l i t i e s 59,330 10.69 2,630 14.82 4.13 10.69 0.28 Wholesale Trade 28,764 5.18 419 2.36 - 2.36 Retail Trade , 63,647 11.47 1,698 9.56 •- 9.56 Finance, Insurance and Real Estate 20,510 3.69 341 1.92 - , 1.92 Community, Business and Personal Services 103,983 18.73 . 3,326 18.78 0.05 18.73 Public Administration and Defence 46,001 8.28 813 4.57 - 4.57 Industries Unspecified or Undefined 15.997 2.88 766 4.31 1.43 2.88 0.33 Totals 555,244 100.00 17,770 100.00 32.75 67.25 0.33 1. Source: Data from Table 3 and Appendix I I . The employment multiplier = 100 * 32.75 = 3.0534. 89 created in the study region. Another way cf interpreting the value of the multipl ier is that each basic worker supports 2.05 jobs in the service sector. Evaluation of the 1961 Mult ipl ier The resulting employment mult ipl ier of 3.05 appears to be rather large for the study area when compared to values obtained for larger and more industrialized economies. Based on an expansion of multipliers which were determined from surveys of three forest dependent towns, the value of the employment multipl ier of the forest industry in Ontario in 1968 was estimated to be in excess of 2.73 (Hedlin, Menzies and Associates, 1969). This same study cited Flora (1965) as finding that the employment mult ip l ier : in timber dependent counties within Washington and Oregon was 2.26. A study of the Los Angeles-Long Beach area in California in 1960, also using a survey technique, yielded an employment mult ipl ier of 2.78 (Hansen, et al_., 1961). The values of these three studies are not s t r i c t l y comparable because of differences in sector definitions used, methodology followed and the nature of the economies measured. For reasons which were discussed previously and which w i l l be elaborated upon further in this chapter, the value of the mult ipl ier can be expected to decrease with the size of the region. Therefore, even on the basis of relative size of the regions alone, i t seems that the value of the multipl ier for study region is actually less than 3.05. There are three major reasons for the large value of the 90 employment mult ipl ier for the study region. Although data limitations had a bearing on a l l three, technique was a main consideration of one of these. F i r s t l y , the level of aggregation of the data by industrial categories resulted in an underestimate of regional exports for reasons discussed previously. There was nothing that could be done to correct this type of error. Secondly, although they were the best s tat is t ics available, the external commodity trade data underestimated both exports and imports of Br i t ish Columbia. Furthermore, exports and imports of non-commodity products were not estimated at a l l . The estimates of the value of provincial consumption which would be especially affected are those for industries, such as Trade and Service, which are connected with tourism. Revenue of the tourist industry of Br i t ish Columbia in 1961 totalled $115 mil l ion (Department of Industrial Development, Trade, and Commerce, 1971). However, there were insuff ic ient data to calculate the proportion of employment engaged in tourism in Br i t ish Columbia in 1961. A third reason why the multipl ier was overstated is that the indirect exports of the benchmark economy were not accounted for. One of the points which was cited in favour of using the location quotient technique was that indirect exports would be automatically accounted for. This is valid as long as the assumption that the benchmark is se l f - suf f ic ient in the production of a l l the goods and services consumed domestically is sat is f ied . The self -suff ic iency assumption is sat isf ied i f the benchmark chosen is a v i r tual ly closed 91 economy with respect to trade, such as the United States. However, in order to select a benchmark with production functions and consump-tion patterns which were similar to those of the study region, i t was necessary to choose Brit ish Columbia. Br i t ish Columbia is an extremely open economy, having signif icantly large values of exports and imports. It was not enough to adjust the employment by industry data of Br i t ish Columbia for direct exports and imports; i t was also necessary to make adjustments for indirect exports. For example, in Appendix I I , after allowing for some log exports, the value of Forestry sales made in the province was $280 mi l l ion . This indicated that 20,103 of 20,900 of the persons employed in Forestry, which was 3.62% of the total employment in Brit ish Columbia, were engaged in producing for the provincial market. However, most of the provincial sales of Forestry consisted of logs which were used to manufacture forest products, much of which were exported. Therefore, the proportion of provincial employment in Forestry which was required for self -suff ic iency was overstated, and the basic employment in the study region was understated. This type of error can be corrected. What was needed was a rows-only portion of an input-output transactions matrix for Br i t ish Columbia, showing the distribution of sales of each industry among provincial industries and f inal consumption. Only two input-output matrices are available. One matrix prepared by Stat ist ics Canada (1969) is the Input-Output Structure of the Canadian Economy, 1961. This publication shows for Canada and for 1961 the distribution of output of industries by commodities and input of commodities to 92 indus t r i es , but not the d i s t r i b u t i o n of sales of indus t r ies . Although i t should be possible to recompile the s t a t i s t i c s into a form sui table for our purposes, i t was not attempted. The second matrix i s a p a r t i a l transactions matrix for components of the f o r e s t , mining and f i sh ing industr ies of B r i t i s h Columbia and the rest of the world (Deutsch, j2t a l_ . , 1959). Although the matrix shows only three natural resource industry groups and uses 1955 data, i t i s the most s u i t a b l e . The sectors of the o r ig ina l matrix were rearranged to comply with the arrangement of data in the rest of the study. Using the d i s t r i b u t i o n of sales of the resource industr ies in 1955 (Table 11) and the corresponding percentage d i rec t exports of tota l sales in 1961 (Appendix I I ) , i nd i rec t exports were estimated (Table 12) as in the fol lowing example for Forestry. Of Forestry sales in 1961, 3.9% were d i rec t exports (Appendix I I ) . The coef f i c ients in Table 7 indicate that Forestry made 64.7% of i t s sales to Sawmil l ing, 8.1% to Veneer and Plywood M i l l s , 10.8% to Paper and A l l i e d Industr ies , 0.3% to Other Wood Industries and 1.0% to Mines, Quaries and Oi l Wel ls . These indus t r i es , in tu rn , exported 80.2%, 77.9%, 77.6%, 78.8%, and 34.4% of the i r production respect ive ly . Forestry i n d i r e c t l y exported 64.7% x 80.2% or 51.8%, 8.1% x 77.9% or 6.3%, 10.8% x 77.6% or 8.4%, 0.3% x 78.8% or 0.2%, and 1.0% x 34.4% or 0.3% of i t s production through these industr ies respec-t i v e l y . Therefore, i f the 1955 in te r - indust ry sales re lat ionships were the same as in 1961, 70.9% rather than only 3.9% of Forestry employment were producing for the export market. The second largest 93 TABLE 11. Distribution of sales of resource industries of Br i t ish Columbia, 1955 . Industries Forestry Sawmilling Veneer and Paper and Other Mi nes, of . Plywood A l l ied Wood Quaries and Origin Mi l ls Industries Industries Oil Wells . 1 64.7* 8.1 . 10.8 0.3 1.0 (192) J (24) (32) (1) (3) t 2 9.4 0.2 2.6 1.4 (46) (1) (13) (7) 3 2.9 1.4 1 (2) (1) Primary Metals (Smelting and Refining) Fishing and Trapping Food and Beverage (Fish Products) 21.6 (42) 2.9 (1) 1.6 (2) 47.2 C58) To Resource Industries To Other Sectors Total Output 84.9 (252) 15.1 (45) 100.0 (297) 13.6 (67) 86.4 (348) 100.0 (488) 4.3 (3) 85.7 (67) 100.0 (70) 21.6 (42) 78.4 (152) 100.0 (194) 2.9 (1) 97.1 (34) 100.0 • (35) 48.8 (60) 51.2 (63) 100.0 (103) 100.0 (123) 100.0 (103) 100.0 (28) 100.0 (28) 100.0 (28) 1.5 (1) 1.5 (1) 98.5 (65) 100.0 (66) 1. Source; Deutch et al_. (1959), Table 1. 2. Percent distribution of sales. 3. Numbers in brackets are value of output f . o . b . industry of origin in mill ions of dol lars . TABLE 12. Employment in resource industries in British-Columbia indirectly linked to exports, 1961 . Industries of Origin 1961 Employment (No. of Persons) 1961 Exports as Percent of Sa 1 es 1955 Indirect Exports as Percent of Sales 1961 Percent Employment Indirectly Linked to Exports Forestry 20,900 3.9 67.0 14,003 Sawmilling 27,536 80.2 10.8 2,974 Veneer and Plywood Mi l ls 6,146 77.9 3.4 209 Paper and A l l ied Industries 11,122 77.6 16.7 1,857 Other Wood Industries 2,126 78.8 2,3 49 Mines, Quaries and Oil Wells 7,887 34.4 40.0 3,155 Primary Metals (Smelting and Refining) 6,641 82.3 - -Fishing and Trapping 16,805 - 10.0 1,681 Food and Beverages (Fish Products) 15,444 10.0 0.2 31 1. Source: Table 5 and Appendix II . 95 percentage indirect exports of total sales, 40% were estimated for Mines, Quaries and Oil Wells. The value of the employment mult ipl ier was reduced from 3.05 to 2.81 (Table 13), a difference of 0.24, by accounting for the indirect exports of only a portion of the benchmark economy. However, the purpose of these calculations was not to improve the estimate of the mult ip l ier , but only to i l lus t rate the effect of ignoring indirect exports when adjusting the benchmark's employment to comply with the self -suff ic iency assumption. It was not possible to determine the magnitude or the relative importance of the three major sources of error which resulted in an overestimate of the employment multipl ier for the study region in 1961. It is possible with some degree of confidence, although riot expressable in terms of s tat is t ica l probabil ity, to state that the true value of the mult ipl ier is less than 3.05. This is equivalent to stating that the value of the mult ipl ier is between three and one or that the proportion of the economy of the study region which is basic is between 33% and 100%. Value of the 1966 Regional Employment Mult ipl ier The regional employment mult ipl ier was estimated for 1961 even though the mult ipl ier was to be applied to determining the impact upon the economy of the study region of a change in forest industry employment during the period from 1966 to 1971, because of data l imitations. In this section, the value of the regional employment TABLE 13. Employment multipl ier part ial ly adjusted,for indirect exports of Brit ish Columbia, 1961 . B.C. Self -Suff ic ient Employed Adjusted, for Indirect Exports - 1961 Study Region Employment 1961 Industries No. of Persons Percent of Total . No. of Persons Percent of Total Percent Basic Percent Service Base Ratio Agriculture 22,388 4.21 1.879 10.57 6.36 4.21 0.60 Forestry 6,100 1.15 1,259 7.07 5.92 1.15 0.84 Fishing and Trapping 15,125 2.85 17 0.01 - 0.01 -Mines, Quaries and Oil Wells 2,021 0.38 678 3.81 3.43 0.38 0.90 Non-Durable Goods Manufacturing 41,688 7.85 198 1.11 - 1.11 -Forest Products 4,626 0.87 2,641 14.89 14.02 0.87 0.94 Non-Forest Products 73,599 13.85 25 0.14 - 0.14 -Construction 27,507 5.18 1,080 6.08 0.90 5.18 0.15 Transportation, Communications and Other U t i l i t i e s 59,330 11.17 2,630 14.82 3.65 11.17 0.25 Wholesale Trade 28,764 5.41 419 2.36 - 2.36 Retail Trade 63,647 11.98 1,698 9.56 - 9.56 Finance, Insurance and Real Estate 20,510 3.86 341 1.92 - 1.92 Community, Business and Personal Services 103,983 19.57 3,326 18.78 - 18.78 Public Administration and Defence 46,001 8.66 813 4.57 - 4.57 Industries Unspecified or Undefined 15,997 3.01 766 4.31 1.30 3.01 0.30 Totals 531,286 100.00 17,770 100.00 35.58 64.42 0.36 1. Source: Tables 4 and 6. The employment multiplier becomes = 100.00 * 35.58 = 2.8106. 98 multipl ier in 1966 w i l l be speculated upon. The proportion of total income spent on local goods and services or the propensity to consume local ly can be expected to change in response tc population growth and per capita income growth in the region (Siegel, 1966; Tiebout, 1962). If total regional income grows as the population grows, given a constant level of per capita income and consumer tastes, the propensity to consume local ly w i l l increase. More local ly produced consumer goods and services w i l l be required as income increases. These can be expected to increase in the same proportion as the income increase up to some threshold point. Beyond this point, there are l ike ly to be large enough local markets for specialty items, and for items for use in production processes or for sale in local industries which were formerly imported into the region to support some import-competing industries locally and at an economical scale. For example, as the number of local food stores increase, i t w i l l become profitable to establish certain Food and Beverage Industries in the region. If per capita income of a given population increases, two offsetting trends in the propensity to spend local ly w i l l result. F i r s t , spending patterns w i l l change. Proportionately more income wi l l be leaked from the spending stream in the form of taxes and savings, leaving less to spend. Furthermore, proportionately more income wi l l be spent on specialty items which may not be available local ly . Offsetting these trends, the effect of the absolute increase 99 in spending power, i f large enough, w i l l lead to an increase in the number of import-competing establishments in the region in the manner explained previously. Besides, higher income groups are more l ike ly to spend more on services, such as entertainment and health services, which create more local income per sales dollar than in trade industries. Which of these offsetting trends is more powerful is not known. The combined effects of income increases due to population growth and per capita income increase could not be empirically determined for the present study. However, i t seems plausible that income increases due to population growth are the major element in any increase in total regional income. If this were true for the study region, then i t can be expected that the proportion of income spent local ly increased as total regional income grew from 1961 through to 1966. Therefore, the value of the mult ipl ier could be expected to have increased as wel l . However, i t is unlikely that the value of the employment mult ipl ier would exceed three. Instead, three can be regarded as the extreme upper l imit of the value of the employment mult ipl ier for the study region. TOO CHAPTER IV THE EFFECT OF THE CLOSE UTILIZATION POLICY ON THE EMPLOYMENT LEVEL IN THE STUDY REGION The B.C. Forest Service's close ut i l i zat ion policy, which was o f f i c i a l l y put into force on January 1, 1966, has had a s i g n i f i -cant effect on forest industry structure, investment, and product mix, and on regional economic development in Brit ish Columbia. In this chapter, the impact of the policy on the level of employment in the study region in 1971 and 1980 w i l l be estimated. THE CLOSE UTILIZATION POLICY Definition and Implementation of the Close Ut i l i zat ion Policy The definition of the B.C. Forest Services' close u t i l i z -ation policy was disclosed in their circular letter to operators in October, 1965, and later c la r i f ied by the former Minister of Lands, Forests and Water Resources in his submission to the Legislative Select Standing Committee on Forestry in March, 1966. These were summarized by the Brit ish Columbia Lumberman in November, 1965 and by The Truck Logger in A p r i l , 1966, respectively. The close ut i l i zat ion policy can be segregated into four main parts: 101 1. calculation of the allowable annual cut, 2. allocation of the allowable annual cut among the existing operators, new operators and the Forest Service Reserve, 3. appraisal of stumpage, 4. keeping of depletion records. The policy was introduced on a voluntary basis, but the B.C. Forest Service offered several incentives to encourage quota holders to elect to operate to close ut i l i zat ion standards (Wil l iston, 1966a), as w i l l be revealed in the following discussion which deals primarily with the interior of Br i t ish Columbia. Calculation of the Allowable Annual Cut The allowable annual cuts of PSYU's and TFL's are calculated to close ut i l i zat ion standards without regard for the end use of the timber. Close ut i l i zat ion standards constitutes logging a l l wood between a one-foot high stump and a four-inch diameter top in a l l trees 7.1-inches diameter at breast height (dbh) and larger. Until 1971, logging to a six- inch diameter top was permitted as interim close ut i l i zat ion standards. Allowance is made for decay, but not for waste and breakage. In the recent past, allowable annual cuts were calculated to intermediate ut i l i zat ion standards which constitutes logging a l l wood between a one and one-half-foot stump and an eight-inch diameter top in a l l trees of 11.1-inches dbh and larger. Allowances were made for breakage and waste, as well 102 as for decay. As a result, the revised allowable annual cuts of PSYU's and TFL's were increased both in total volume and in the proportion of smallwood. The allowable annual cut of PSYU's and TFL's are calculated by means of a refinement of the Hanzlick's formula (Williston, 1969; Young, 1969): AAC = \ + I (12) R where, AAC = allowable annual cut of a unit, Vm = merchantable volume of mature timber of the unit, R = rotation age of the unit or the age at which the mean annual growth, or the mean annual increment, of accessible forest stands of the unit is maximum, and I = mean annual increment of accessible forest stands at rotation age multiplied by the area of the unit. Instead of applying the formula to a unit in aggregate, the B.C. Forest Service calculates the indicated allowable annual cut by summing the mature and immature annual yields of individual growth types of the unit. The calculation may be summarized as follows: n V k V. AAC = £ _± + -J- A. (13) 1-1 * 1 j - 1 R j J where, AAC = allowable annual cut of the unit, = mature volume of growth type i , R. = rotation age of growth type i as determined from 103 i ts volume over age curve, V. = volume per acre which immature growth type j w i l l J reach at rotation age as determined from i ts volume over age curve, = rotation age of immature growth type j as determined for i ts volume over age curve, and A. = area of immature growth type j . 3 The rotation age of the unit , Ru , is calculated as follows: n k Ru = % V. + V.A. (14) 1=1 1 j=l J 3 The indicated allowable annual cut and the weighted average rotation age of the unit are then adjusted by an area - volume allotment check. As a result of adopting close ut i l i zat ion standards, the allowable annual cut available to the forest industry was increased at both the intensive and the extensive margins. Economists refer to the last increment of labour-plus-capital applied to a given acre of land as the intensive margin (St igler , 1966). In this sense, the marginal tree is the smallest tree which is just remunerative to harvest. The extra labour-plus-capital used to extract the marginal tree is the economists' intensive margin. Under the close ut i l i zat ion policy more wood than before was to be removed per acre of forest land by applying more labour-plus-capital per acre. The revised merchantability standards used to calculate the allowable annual cut y ield resulted in a larger volume of mature timber per acre per year for a given rotation age. Furthermore, as the volume 104 of merchantable timber per acre increased, the time required by a given stand to reach volume culmination age decreased. Therefore, for a given growth type, the annual y ie ld was increased. The extensive margin is the land of the lowest quality which w i l l y ie ld a product whose value is equal to the f i r s t unit of labour-plus-capital applied to i t (St igler , 1966). The extensive margin of each PSYU and TFL was expanded by the revised merchantability standards. Many acres of mature forest which consisted of stagnated and decadent stands, and which were foremerly unmerchantable or inaccessible were included in the revised allowable cut calculations. As a result of extending the intensive and extensive margins, the B.C. Forest Service was able to increase the allowable annual cuts in PSYU's by 15% to 1700% (Wil l iston, 1966a). Allocation of the Allowable Annual Cut The entire allowable annual cut increases in TFL's were available to the licencees. In PSYU's 40% of the increase was allocated to established quota holders and 60% was reserved for B.C. Forest Service commitments to the pulp manufacturers. These proportions could be varied by the Minister in individual PSYU's. Operators who elect to log to close ut i l i zat ion standards are confined to stands containing a signif icant proportion of smallwood and may obtain, as an inducement, up to a one-third increase in their regular quotas on the basis of performance. By performance, i t is meant that the operator has sawmilling equipment 105 suitable to u t i l i ze small logs and a one-year-plus contract with a pulpmill to sel l pulpwood or chips. As a result , operators have had to insta l l barking and chipping equipment, and high-speed sawmills to economically process small logs. Since only about 40% of the allowable annual cut increase in any PSYU was available to established quota holders, there was an incentive for individual operators to apply for additional quota volumes up to the one-third l imi t before the 40% portion was completely allocated to their r i va ls . Firms which did not elect to operate to close ut i l i zat ion standards received no quota increases and were confined to stands which do not contain a significant proportion of smallwood, i . e . sawlog stands. These operators face an uncertain future, because their ab i l i t y to expand has been restricted and sawlog stands are becoming scarce. The rate of change of annual harvests of species which normally occur as sawlog stands has been either increasing very slowly or decreasing during 1953 to 1968 (Smith and Kozak, 1970). After 1969, the uncommitted' balance cf allowable annual cuts was ailocated as "third" band" wood to new and established sawmilling, and plywood and veneer manufacturing firms who held Timber Sale Harvesting Licences (TSHL) and on the basis of performance (Dingwall, 1969). The third band policy is consistent with a basic aim to have pulp mil ls operating solely on chips from sawmill wood residues. A TSHL is a form of tenure, introduced in 1968, which allows the licensee to consolidate his quota within a PSYU and receive long-term cutting rights to volume within one area, which usually consists 106 of one or more drainages. These licences are renewable every ten years and are awarded only to firms which operate to close ut i l i zat ion standards. There are three other regulations which apply to third band wood. F i r s t l y , in a given PSYU, third band wood wi l l only be awarded i f 90% or more of the established quota holders elect to operate under TSHL's. In some PSYU's this rule has been waived. Recently, third band wood has been allocated to firms new to the PSYU's which have constructed a mil l capable of processing third band wood even i f they do not have quota volumes to consolidate into a TSHL (Neighbour, interview, 1973). Secondly, the additional wood w i l l be made available on a year to year basis and wi l l not become part of an operator's quota. Thirdly, chips produced from the third band wood must be sold to a designated pulp m i l l . Stumpage Appraisals'' For firms which elect to operate to close ut i l i zat ion standards, stumpage for timber harvested from trees from 7.1 to 11.0-inches dbh w i l l be appraised at a f l a t rate of 55 cents per 100 cubic feet or cunit (C cf) unti l 1978. Stumpage for timber harvested from trees 11.1-inches dbh and over is appraised at normal stumpage rates. A l l logging salvage wood recovered from Timber Sales which have been previously logged to intermediate ut i l i zat ion standards w i l l be appraised at 20 cents per cunit until 1983. Stumpage rates charged on close ut i l i zat ion Sales is actually a pro-rated rate per cunit established on the basis of cruise volume 107 the f l a t rate and the prevailing sawlog stumpage rate. Stumpage for firms which continue to operate to intermediate ut i l i zat ion standards is charged at the prevailing sawlog rates. The only documented economic basis for the appraisal of stumpage for logging waste is a joint logging waste salvage experiment conducted on the coast of Br i t ish Columbia by the B.C. Forest Service, Comox Logging and Railway Company, and Powell River Co. Ltd. in 1943 (Stokes, 1965). Salvaged material ranged from 10 to 90 feet in length with an average top diameter of 6.1 inches. Conclusions drawn from the study were that (1) the salvaged material could be logged at a cost close to i ts value as pulpwood, and (2) the cost of handling this material in the pulpmill was similar to the cost of handling normal pulp logs. In 1946, a f l a t rate of 20 cents per cunit of logging waste salvaged was levied in order to encourage such u t i l i za t ion . Depletion Records Depletion records are based on a l l harvested sound wood scaled plus 'logging waste scaled in the woods in order to prevent overcutting. Previously, allowable annual cut calculations allowed for inaccessible timber and portions of timber which were unsuitable for lumber manufacturing le f t in the woods. By 1971, both the B.C. Board Foot Scale and the B.C. Lumber Cubic Scale Rules were super-seded by the B.C. Firmwood Cubic Scale Rule as the o f f i c i a l method of measuring volumes for b i l l i ng stumpage and royalty, and for 108 cut control for a l l firms, whether they had elected to operate to close ut i l i zat ion standards or not. Unless logs are straight, defect-free and bucked in even lenghts plus trim, the net scale under the Firmwood Cubic Scale Rule w i l l be greater than under the formerly used rules (Dobie, 1972). A l l sound wood harvested less deductions only for decay, charred wood and "cat-face", is charged against quotas. As a result , the original sawlog portion of quotas are reduced by an amount of volume formerly allowed for by Lumber Cubic Scale deductions. Accordingly, lumber recovery from logs scaled by the B.C. Lumber Cubic Scale Rule, for a given log input in a given sawmill, is higher than by the B.C. Firmwood Cubic Scale Rule. Furthermore, firms which continue to operate to inter-mediate ut i l i zat ion standards actually have their quotas reduced under this system of cut control. The method of logging waste measurement was described by Fairhurst (1968). Until 1971, only flagrant logging waste was charged against operators' quotas or resulted in suspension of operations pending rect i f i cat ion . As a result , until 1971, i t was possible that stumpage for close ut i l i zat ion Timber Sales was lower than for sawlog Sales. If the cruise volume of a Sale included a large proportion of defective timber, such as decadent red cedar (Thuja plicata Donn.) and hemlock (Tsuga heterophylla (Raf.) Sarg.), most of the smallwood portions of the Sale would not be harvested. The low rate of stumpage would be charged for a l l other wood which was recovered. 109 Modified Methods of Implementing the Close Ut i l izat ion Policy Although the close ut i l i zat ion policy has generally been implemented in the way previously outlined, these regulations have been modified to some extent to accommodate special local conditions (Neighbour, interview, 1973). For example, although the close ut i l i zat ion policy applies to a l l forest types, some types such as cedar, hemlock and cedar-hemlock are appraised by a special method. These types are c lass i f ied according to a system based on specied composition, geographic location, proportions of "high risk" trees and proportions of non-sawlog material. Some species, such as Douglas-fir (Pseudostuga menziesii (Mirb.) Franco), ponderosa pine (Pinus ponderosa Laws.) and larch (Larix occidental is Nutt . ) , may be selectively logged to a diameter l imit of 13-inches dbh, although these are logged to a 6-inch diameter top and a one-foot stump. There are several alternative methods of qualifying for the close ut i l i zat ion quota increase. Operators without barking and chipping equipment, or independent loggers, may elect to be "on close ut i l i zat ion in the bush" as long as they log to close ut i l i zat ion standards and i f they either ( 1 ) sel l the smallwood and pay stumpage on a prorated basis, or (2) i f they do not elect option (1), they must pay royalty rates, as set out in the Forest Act Section 58, for the smallwood. n o Purpose of the Close Ut i l izat ion Policy The rationale of the B.C. Forest Service behind adopting the close ut i l i zat ion policy was primarily to reduce physical wood waste, both in logging and mi l l ing , in order to increase the volume of wood available to the expanding forest industry in the province under the constraint of sustained y ield forest management (Wil l iston, 1966a). In some parts cf the province, the forest industry had been progressing toward fu l le r ut i l i zat ion of wood before the close ut i l i zat ion policy was implemented. However, most of the improve-ments consisted of manufacturing chips from sawmill residues for use in pulp mi l l s . In the 1950's, most integrated forest product companies on the coast were using chippable sawmill residues and some roundwood as sources of pulpwood, while in the inter ior , most sawmill residues were burned (Sloan, 1957). Installation of barkers and chippers did not occur in the inter ior unti l pulp m i l l s , which were bui l t in the interior after 1960, provided markets for chips within economical hauling distance of the sawmills. The 1957 Continuous Forest Inventory of the B.C. Forest Service estimated that, annually, logging residues amounted to 238 mil l ion cubic feet on the coast and 37 mil l ion cubic feet in the inter ior (Smith, 1968). By 1965, the B.C. Forest Service held that i f i t did not encourage fu l le r ut i l i zat ion in logging as wel l , the rapid expansion of the pulp industry, especially in the inter ior , could not be sustained with the result that Brit ish Columbia would lose i ts advantage in the expanding pulp and paper market (Wil l iston, in 1965). On the coast, pulpwood supplies were becoming so scarce that pulp mil ls were forced to turn increasingly more to roundwood. These trends in the forest industry in Br i t ish Columbia did not occur without signif icant influence from prior forest pol ic ies . The most significant factor underlying forest policy in Bri t ish Columbia is public ownership of almost 95% of the forest lands in the province with centralized control exercised in the public's interest by a relatively small Forest Service (Nagle, 1970; Sloan, 1957). What the public interest i s , is reflected, in part, in the purpose behind the many forms of forest tenure by which the B.C. Forest Service have allocated cutting r ights. Most of the forest tenures up to 1945 were introduced to increase provincial revenues from the forest resources. Exceptions were the Pulp Leases of 1901, Pulp Timber Sales of 1912 and Pulp Licences of 1919 which gave various incentives to pulp manufacturers to establish and enlarge pulp production in Brit ish Columbia (Nagle, 1970). Implementation of sustained y ield forest management in Brit ish Columbia was urged by Sloan in 1945 (Sloan, 1957). The developments in forest tenures which followed were designed not merely to obtain revenues from Crown forests, but to provide growing and stable employment (Sloan, 1957). In order to implement sustained y ie ld forest management, two forms of administrative units were created, the Forest Management Licence and the Public Working C ire Tie. Forest Management Licences were renamed Tree Farm Licences after 1956. Public Working Circles and Public Sustained Yield Units are both commonly referred to as 112 Public Sustained Yield Units. . The Public Working Circles were intended to be large enough to support a certain mil l ing capacity on a sustained y ield basis. Timber within PSYU's is disposed of by temporary tenures called Timber Sales which are sold by com-petitive bidding. Prior to 1960, the competitive element of Timber Sales bidding was eroded f i r s t l y , by allowing only established operators within a particular PSYU to apply for additional Timber Sales within that particular PSYU, and secondly, by allowing the applicant to protect his quota by the right to match the highest sealed bid. A further barrier to entry of new operators into PSYU's, which was introduced in 1965,' is the non-refundable bidding fee, equal to 5% of the assessed value of the Timber Sale. These developments in allocating Crown timber were intended to encourage investment in large, integrated wood conversion plants which can only be jus t i f ied as long as there is a certain and adequate wood supply to allow their continuous operation over their economic l i f e . The consolidation of small legging and sawmilling operations into larger, integrated operations has long been encouraged by the B.C. Government (Wil l iston, 1961). Within the framework of i t s goal of s tabi l i z ing the forest industry by means of encouraging the establishment of large, integrated operations within private and public sustained y ie ld units, the aim of reducing physical wood waste in logging was pursued by the B.C. Forest Service. In 1961, the pulp industry was superimposed over the lumber industry within PSYU's with the introduction of Pulp Harvesting Areas (PHA). PHA's give the licensee, 113 for a renewable period of 21 years, exclusive rights to purchase wood which can not be used by the lumber industry from one or more PSYU's. In return, the licensee was committed to build a pulp mil l of a specific size by a specif ic date. The f i r s t PHA was awarded to Prince George Pulp and Paper Ltd. in 1962. The second was awarded to Kamloops Pulp and Paper Co. L td . , now Weyerhaeuser Canada L td . , in 1963. Four others were awarded shortly after these. Because of the nature of the coastal forest industry, no PHA's were awarded there. No more PHA's are l ike ly to be awarded in the inter ior . Most PSYU's. in the interior which are not within PHA's are located in the northern regions of the province where there were no established sawmill operators prior to 1965. In these areas, a new form of tenure, called the Timber Sale Harvesting Licence, was created. In 1965, the f i r s t TSHL's were awarded to Alexandra Forest Products Ltd. and to Cattermole Timber Ltd. in the Finlay PSYU. These original TSHL's were awarded for renewable periods of 21 years, on the conditions that the timber be logged to close ut i l i zat ion standards and that pulp mil ls would be bu i l t . These early TSHL's di f fer from PHA's in that TSHL licensees may cut a l l the timber, pulpwood and sawlogs, within their unit. Subsequent TSHL's, awarded since 1968, are renewable every 10 years. Concurrently within the evolution of these forms of tenures, the goal of reducing wood waste was further pursued by the B.C. Forest Service by implementing their close ut i l i zat ion policy on January 1, 1966. It was hoped that the close ut i l i zat ion policy would lead to a faster rate of technological change in wood u t i l i z - " ation and to a rationalization of the forest industry such that 114 logs would be allocated to their best use and more wood would be available for the expanding pulp industry (Wil l iston, 1965). Furthermore, by increasing the degree of ut i l i zat ion of wood volume per acre of forest land, i t was hoped that more persons would be employed in harvesting as well as in conversion plants (Stokes, 1965). The increased industrial act iv i ty in the forest industry was expected to lead to expansions in supporting indus-t r i es , such as transportation (Wil l iston, 1965). Besides the goal of stimulating economic growth in the province, there were also alleged forestry and conversationist bases for the policy. Closer ut i l i zat ion of wood in the forest believed to result in less slash than under the intermediate ut i l i zat ion standards. Less slash would reduce the f i re hazard and aid in securing a new timber crop more quickly with the result that forest land would be kept productive at a l l times (Stokes, 1965). That closer ut i l i zat ion would aid in conserving Crown forest resources for future wood needs was expressed by R.I. Fi lberg, who test i f ied to Commissioner Sloan (1957) as follows:• There are times when we are recovering salvage, for instance, that i t is costing us more to recover than i t is worth, but we w i l l catch i t on the other end. Then or f i f teen, or twenty years from now we w i l l have conserved some timber that we can make some money on and that w i l l make up for what we have lost to-day. (Sloan, 1957, p, 378) Much of actual forest policy in Bri t ish Columbia has paralleled the philosophy of Sloan (1957). Therefore i t is l ike ly that thi 115 conservationist reasoning was taken into account by the B.C. Forest Service in their decision to implement their close u t i l i z -ation policy. EFFECT OF THE CLOSE UTILIZATION POLICY Approach and Assumptions The short-term impact, from 1966 to the end of 1971, was estimated using knowledge about the forest industry which was available at the end of 1965, as well as some recent logging and sawmilling research, which could have been conducted prior to 1965. Two estimates of the long-term impact, from 1971 to 1980, were made. The f i r s t was based on the trends established by the short-term projection. The second long-term projection was made by recalibrat-ing the short-term forecasting model with 1971 data. In a l l three projections, i t was assumed that a l l operators who could afford to adopt close ut i l i zat ion standards would do so. In this way, the maximum possible impact of the policy could be estimated. The incentives offered by the B.C. Forest Service in their policy to encourage forms to adopt close ut i l i zat ion standards partly just i fy making this assumption. Briefs presented by forestry associations to the Legislative Standing Committee on Forestry in 1966 a l l supported the close ut i l i zat ion policy in pr inciple, although their opinions differed on the methods chosen by the B.C. Forest Service to implement the policy (The Truck Logger, 1966). 116 Further just i f icat ion for making this assumption which stems from economic characteristics of the forest industry w i l l be examined later . The basis of the estimates of the employment impact is that the close ut i l i zat ion policy, by altering the volume and composition of the timber supply, accelerated the rate at which the structure of the forest industry was evolving, as was expected by the B.C. Forest Service when they implemented their policy. F i r s t l y , the potential increases in PSYU and TFL timber supplies were determined. Secondly, the effects of the revised timber supply oh the cost-price relationships of logging and sawmilling were determined. Thirdely, the resulting changes in industry structure and employment were determined. Then, by means of the regional employment mult ip l ier , the total impact of the policy on the level of regional employment was estimated. The close ut i l i zat ion policy was not expected to have a signif icant influence upon the 1971 levels of employment within the veneer and plywood, and pulp industries for two reasons. F i r s t l y , veneer and plywood industry used only a small portion of the region's annual timber harvest. Secondly, a l l of the wood supply of the Kamloops pulp mil l is derived from sawdust or from chips manufactured from wood industry residues. Employment in the pulp mil l was not expected to change appreciably from i ts 1965 level until the m i l l ' s capacity would be expanded in 1972 from 90 to 450 tons of bleached kraft pulp per year. PHA No. 2 provided Weyerhaeuser Canada Ltd. an assured pulpwood supply on which to make 117 i ts i n i t i a l pulp mil l investment. It had been estimated that there was a potential chip supply solely from sawmill residues within PHA No. 2 in 1966 suff icient to support a pulp mil l capacity of 304 tons per day (Fowler, 1966). While the sawmills were adjusting, to the new local chip market, Weyerhaeuser bought the balance of i ts chip requirements, in competition with coastal pulp m i l l s , from sawmills outside PHA No. 2 by offering prices which included freight charges (Christ ie, 1967). Although Weyerhaeuser worked toward building an assured pulpwood supply within PHA No. 2 during 1965 to 1971, i t is unl ikely, as w i l l be explained later , that the company would have been able to expand their pulp mil l to a capacity of 450 tons per year in 1972 without the close ut i l i zat ion policy. Therefore, the impact of the close ut i l i zat ion policy on pulp mil l employment wi l l be considered only in the long-term projection. THE EFFECT OF THE CLOSE UTILIZATION POLICY ON THE LEVEL OF EMPLOYMENT IN 1971 Timber Supply The timber supply for the whole study region increased both in total volume and in the proportion of smallwood as a result of calculating the allowable annual cuts of PSYU's and TFL's to close ut i l i zat ion standards. 118 Allowable annual cut increases of PSYU's within the study region ranged from 20 to 637% and averaged 154% (Table 14); the TFL increases ranged from 53 to 132% and averaged 100% (Table 15), The entire allowable annual cut increases of the TFL's were available to their licensees. Since only 40% of the allowable annual cut increases of PSYU's would be allocated to established quota holders other than pulp manufacturers, this l imi t was determined for each PSYU in the study region (Table 16). The 40% portion of the cut increases were insuff icient for a l l quota holders to increase their quotas by one-third in only three of the PSYU's. In the Botanie and the Nicola, the deficiencies were 270 and 100 M cf per year respectively. It w i l l be demonstrated later in this chapter that most of the smaller operators were forced to exit from the industry. Therefore, i t was assumed that a l l firms in these two PSYU's were given a chance to obtain a one-third increase in their quotas. The differences w i l l be automatically adjusted for by the exiting firms. In the Kamloops PSYU, the deficiency was 2,447 M cf per year. It was assumed that operators in this PSYU could elect to operate to close ut i l i zat ion standards, but no one could be able to increase their quota. It had been realized for some time that the Kamloops PSYU, then a Region, was being overcut (Wil l iston, 1966d). In 1969, operators in the Kamloops PSYU were given the option of either adopting close ut i l i zat ion standards without any increases in their quotas or remaining logging to intermediate ut i l i zat ion standards, but shutting down their operations by 1972. The differences between the revised and former allowable TABLE 14. Allowable annual cut increases of PSYU's in the study region. C U . I.U. C.U.-I.U. .Increase in PSYU Allowable, Allowable^ Allowable Allowable Annual Annual Cut Annual Cut Annual Cut Cut over I.U. Level (M cf/Yr) . (M cf/Yr) (M cf/Yr) {%) Adams 15,857 5,250 10,607 . 202 Barriere 9,000 4,400 4,600 105 Big Bar . 17,500 7,039 • 10,461 148 Botanie 8,493 5,000 3,493 70 Eagl e 5,320 i 2,000 3,320 166 Kamloops 11,500 9,610 1,890 20 Nehalliston 11,700 2,000 9,700 486 Nicola 13,330 7,407 5,923 80 Niskonlith 8,100 2,350 5,750 245 North Thompson 13,900 5,500 8,400 153 Raft 13,100 5,000 8,100 162 Salmon Arm 4,000 2,100 1,900 90 Shuswap 16,400 6,500 9,900 152 Yalakom 22,500 3,050 19,450 637 Totals .170,700 67,206 103,494 154 1. Kamloops Forest D is t r i c t , Distribution of Allowable Annual Cuts of PSYU's, A p r i l , 1972. (calculated to interim close ut i l i zat ion standards). 2. Kamloops Forest D is t r ic t Annual Report, 1965. (calculated to intermediate ut i l i zat ion standards)^ TABLE 15. Allowable annual cut increases of Tree Farm Licences in the study region. TFL No. AAC , AAC „ AAC Increase at C U . at I .U/ M cf/Yr M cf/Yr M cf/Yr Percent 16 2,300 1,500 800 53 18 5,800 2,500 3,300 132 33 788 385 403 105 35 3,500 1,800 1,700 94 Totals 12,388 6,185 6,203 100 1. Kamloops Forest D is t r i c t , "List of Tree Farm Licences, 1970", (calculated to interim close ut i l i zat ion standards) 2. Kamloops Forest D is t r ic t Annual Report, 1965. (calculated to intermediate ut i l i zat ion standards), TABLE 16. Volumes available for quota increases in PSYU's . 40% of C.U.-I .U. Existing Quotas Remaining Allowable increased by Allowable Annual Cut 1/3 Annual Cut PSYU (M cf/Yr) (M cf/Yr) (M cf/Yr) Adams 4,243 1,633 8,974 Barriere 1,840 1,343 3,257 Big Bar 4,184 2,346 8,115 Botaine 1,397 1,667 2,096 Eagle 1,328 600 2,720 Kamloops 756 3,203 1,134 Nehalliston 3,880 663 9,037 Nicola 2,369 2,469 3,554 Niskonlith 2,300 783 4,967 North Thompson 3,360 1,800 6,600 Raft 3,280 1,600 6,500 Salmon Arm 760 690 210 Shuswap 3,960 1,908 7,992 Yalakom 7,780 1,000 18,450 Totals 41,437 21,706 83,606 1. Source: Table 14. 124 annual cut volumes do not consist of only smallwood. Therefore, the percentage of smallwood in each PSYU was estimated from forest inventory data (Table 17). The sawlog portion of a unit was defined as the volume in trees 11.1-inches dbh and over, calculated to intermediate ut i l i zat ion standards less decay, breakage and waste. The smallwood portion of the allowable cut of a unit was defined as the volume in trees 7.1-inches dbh and over, calculated to interim close ut i l i zat ion standards, less the sawlog volume. These def in i -tions were used because of data l imitat ions. The resulting percentages were used to segregate each quota holder's potential quota into smallwood and sawlog volumes. The volumes of smallwood and sawlogs of the TFL's were estimated from the percentages of smallwood of adjacent PSYU's. Then, the changes in sawlog and smallwood volumes were determined for each operator (Appendix II I) . The sawlog volumes of every operator, except for one, decreased by adopting close ut i l i zat ion standards. The sawlog portion of former quotas was replaced by increased volumes of smallwood. The total increased wood supply for sawmills was 90,829 M cf , of which 54,254 M cf was sawlog volume and 36,575 M cf was smallwood. In 1965, the total wood supply was 67,363 M cf , a l l of which was sawlog volume. By adopting close ut i l i zat ion standards, the total sawlog volume decreased by 13,109 M cf . The loss of sawlog volumes or "degrading the quota of wood available by changing i ts scale" as Mahood (1966) expressed i t , was one of the objections raised by the forest industry to the B.C. Forest Service's method of implementing the close ut i l i zat ion policy. TABLE 17. Proportion of smallwood volume by PSYU . Net Volume 9 Net Volume 3 Net Volume Percent PSYU C U . Standard I.U. Standard Small wood Smallwood (M cf) (M cf) . (M cf) Portion Adams 946,377 616,782 329,595 35 Barriere 479,628 327,744 . 151,884 32 Big Bar 843,445 445,707 397,738 47 Botanie 1,302,410 748,823 553,587 42 Eagl e 415,328 265,884 149,444 36 Kamloops 619,136 331,308 287,828 46 Nehalliston 370,372 167,487 202,885 55 Nicola 1,028,225 594,106 434,119 43 Niskonlith 342,067 220,076 121,991 36 North Thompson 1,625,336 1,069,368 555,968 34 Raft 767,731 506,656 261,075 34 Salmon Arm 125,853 79,048 46,805 37 Shuswap 1,236,321 751,758 484,563 39 Similkameen 1,464,093 912,669 551,424 38 Yalakom 1,743,157 1,031,393 711,764 41 Lac La Hache 1,527,025 922,391 604,634 40 Totals 14,836,504 8,991,200 5,845,304 39 1. Source: Compiled from B.C. Forest Service, Forest Inventory Statist ics of Brit ish Columbia 1970f Dept. of Lands, Forest and Water Resources, Victor ia, B.C., 1972. 2. Net volume of mature trees of a l l species (7.1 inch dbh+, Close Ut i l izat ion Less Decay.). 3. Net volume of mature trees of a l l species (11.1 inch dbh+, Intermediate Uti l izat ion Less Decay, Waste and Breakage.). 127 The timber supply available for logging in 1971 included the volume available for sawmilling plus revised unassigned and exported quotas and amounted to 96,202 M cf. There are several reasons for the discrepancy between the actual and estimated 1971 timber supply from PSYU's and TFL's. F i r s t l y , the actual imported timber supply of 1971 was greater than 133% of the 1965.imported volume, because the importing firms acquired additional quota volumes from firms outside the region. Secondly, the volume of quota unaccounted for in 1965 was greater than in 1971. Thirdly, some of the allowable cuts calculated to intermediate ut i l i zat ion standards were revised to include formerly inaccessible forest lands and to incorporate revised inventory information before the one-third increases were granted. In the absence of the close ut i l i zat ion policy, i t was assumed that annual harvests from Timber Sales and TFL's would continue to increase at the same rate as during the period from 1955 to 1965 in the Kamloops Forest D is t r ic t . The compount rate of increase in annual harvests from these two forms of tenures was found to be 4.4% per year. This rate was determined by plotting annual harvests on the logarithmic to base 10 axis i f semi-logarithmic graph paper over time (Smith and Kozak, 1970; Husch, 1963) (Figure 9). Extrapolating the 1965 volume of timber supply at this rate, the 1971 timber supply would be 87,173 M cf for sawmilling and 92.323 M cf for logging. Prior to 1965, few firms were cutting trees below 11.1-inches dbh (Tobin, 1970), and i t is l ike ly that without the close ut i l i za t ion policy only a few firms would have begun to u t i l i ze 1 smaller sized timber by 1971. Therefore, FIGURE 9. Annual Harvests from Timber Sales and TFL's in the Kamloops Forest Dist r ic t , 1955-1965 (B.C. Forest Service Annual Reports, 1955-1965.) 129 in order to sustain an annual rate of increase of 4.4% in timber harvests, most of the volume would have been obtained from previously inaccessible stands and inventory revisions. The balance would have been obtained by harvesting smaller stems and by cutting to a lower stump height and a smaller top diameter. Logging and Sawmilling The major trends in the forest industry, prior to 1965, were toward 1. fewer and larger m i l l s , 2. integration from pulp and paper manufacturing back to forestry and forward to marketing, and 3. improvements in the degree of wood ut i l i zat ion in sawmills. Among the principal causes for these trends, other than forest po l ic ies , were (1) declining accessibi l i ty and quality of timber supplies, (2) relatively faster rates of increases in the prices of productive factors compared to the price of lumber, and (3) rapid expansion of the pulp industry into the interior of Br i t ish Columbia. Mullins (1967) studied the changes in location and structure which occurred in the forest industry from 1909 to 1966 in north central Br i t ish Columbia. The changes which she described were similar to those which occurred in the study region. In order to maximize their prof i ts , sawmilling firms have applied for timber sales which were as close to their mil ls as 130 possible and contained the highest possible quality timber. Even-tual ly , their timber supplies became more distant from their sawmills, at higher elevations and of poorer quality. I n i t i a l l y , sawmills were small and portable so that they could be moved from one location to the next as timber supplies became exhausted. Logs were forwarded from the forest to the m i l l , and rough lumber was hauled by trucks to planer mil ls which were located along railway and trucking routes. This pattern of dispersed logging-portable sawmill units located around a central planer mil l was s t i l l prevalent to some extent in the study region even in 1965. After 1958, this spatial industry structure became less frequent in north central Br i t ish Columbia for several reasons. Wages and other sawmilling costs were increasing faster than the price of lumber. I t , therefore, became necessary to increase the degree of mechaniz-ation in sawmilling to increase the productivity of labour and there-by retard unit cost increases. The cost-price relationships of sawmilling w i l l be described in more detail later in this chapter. As log transportation systems improved and the economical size of sawmills increased, logging became spatial ly separated from saw-mi l l ing . Concurrently, as the distance of timber supplies from sawmills increased and as the quality of timber decreased, i t became necessary to improve productivity in logging, from the forest to the mil lyard. 1. Logging (a) Logging Costs and Productivity 131 The movement of timber from the forest to the millyard involves two main processes: 1. logging, in which trees are fe l l ed , manufactured into logs and loaded onto trucks; and 2. trucking, in which logs are hauled to the m i l l . One of the most signif icant developments which allowed the separation of logging from sawmilling was the development of powerful deisel engine logging trucks which fac i l i tated faster hauling than was possible with gasoline engine trucks. As public highway load restrictions became a l imiting factor, improved off -highway logging roads were b u i l t , as more powerful road building equipment became available. These improvements kept wood costs from increasing excessively (Mcintosh, interview, 1973). In 1965, trucking costs in the inter ior ranged from 10 to 15 cents per C cf per mile over the average basic cost of $2.50 per C cf for a 5-mile haul (Smith, 1968). Due to public highway restr ict ions, an average load is approximately 15 C cf gross scale. Logging productivity is influenced by a large number of factors (McGraw, 1962), the most signif icant of which include tree species, tree size distr ibut ion, terra in , defect, operator s k i l l and logging method (Dobie, 1972; Dobie et al_., 1970, Mcintosh, 1968; Mcintosh and Csizmazia, 1965; Gunn and Guernsey, 1958; Nixon and Gunn, 1957). Fell ing and skidding account for the largest propor-tion of production time. If production time of loading and skid-t r a i l building are excluded for four comparable logging operations in 132 1odgepole pine (Pinus contorta var. l a t i f o l i a Engelm. ex S . Wats.) stands studied by Mcintosh and Csizmazia (1965), 55.3 to 64.4% of production man-hours paid is accounted for by fe l l ing and 35.6 to 44.7%, by skidding. The largest proportion of total productive skidding time, 24 to 41%, was accounted for by the hooking-up phase. Hooking-up refers to an operation in which suff ic ient logs are assembled into a load, cr turn, and connected with wire cable chokers to a skidding tractor. The largest proportion of total, productive fe l l ing time, 28 to 68%, depending on the branchiness of the timber, was found to be spent limbing and topping. Most of the improvements in productivity were made in these two phases. Fell ing productivity had been improved by the development of ; l ighter and more maneuverable power saws. As a move toward mechanization in f e l l i n g , the tractor-mounted hydraulic fe l l ing shears were being tested in the Prince George area during the 1960's. Tree shears are suitable in stands with relatively level terrain. Mechanical slashers to replace manual bucking are also being introduced into the north central inter ior . Perhaps the most signif icant improvements in logging productivity, recently, have been the development of the wheeled skidder and the change from long-log to tree-length skidding (Bowland, 1971). Wheeled skidders were f i r s t introduced into the Prince George area in 1963 and, by 1965, were accepted as the most ef f ic ient skidding, machine by most operators (Clutterham, 1970) due to i ts f l e x i b i l i t y and higher travell ing speed compared to crawler tractors. In their study of five comparable skidding operations in lodgepole pine stands, Mcintosh and Csizmazia (1965) found that productivity of crawler tractors ranged from 174 to 314 cubic feet 133 per machine-hour and averaged 289 cubic feet per machine-hour. Productivity of wheeled skidders ranged from 418 to 428 cubic feet per machine-hour and averaged 419 cubic feet per machine-hour, which is a difference in productivity of 45%. Despite the improvements in logging technology, produc-t i v i t y in the Kamloops Forest Dist r ic t apparently declined from 70.75 M cf per man-year in 1962 to 55.65 M cf per man-year in 1965, a decline of 21.34% (Table 18). Employment s tat is t ics are not available from Stat ist ics Canada for the interior for the years prior to 1965 to allow comparisons. However, during the same period in Brit ish Columbia, logging productivity apparently declined s l ight ly from 81.7 to 79.2 M cf per man-year, a decline of 3.06% (Table 18). There are several l ike ly explanations for this apparent decline in productivity. F i r s t l y , loggers in the Kamloops Forest Dist r ic t may have been slow to adopt the newly developed logging technology. Most of the logging and trucking in the region is conducted by relatively small contracting firms which own their equipment and hire their own crews. Perhaps the average size of logging firms was too small to enable them to afford to replace their machines quickly enough to improve their productivity as timber quality and accessibi l i ty declined. Small contractors are considered to be risky borrowers by banks and finance companies because logging contractors are quite susceptible to bankruptcy and are charged higher interest rates for financing equipment purchases than larger firms. The large forest product companies provide financing to their logging contractors in TABLE 18. Logging productivity in the Kamloops Forest Distr ict and in Brit ish Columbia, 1962-1971. Logging Productivity (M cf per man-year) Year ;—~~ ~ : Kamloops Forest Brit ish Columbia Distr ict 1962 70.753 1963 74.883 81.683 1964 69.905 80.908 1965 55.652 79.740 1966 60.939 87.500 1967 60.611 88.414 1968 67.364 93.062 1969 67.256 83.300 1970 80.227 92.685 1971 82.878 1. Kamloops Forest Dist r ic t Annual Reports, 1962-1971 and B.C. Forest Service Annual Reports, 1962-1971. 2. Stat ist ics Canada, Logging, Cat. No. 25-201, 1962-1969. 135 order to maintain assured log deliveries from their licences. Recently, some larger forest product companies have begun to purchase and to lease logging equipment to their contractors (Mcintosh, interview, 1973). Furthermore., small firms which operate in diverse timber types cannot afford specialized complements of machines which would enable them to achieve least cost production in certain forest types (Mcintosh,- interview, 1973). Secondly, i t is possible that employment data are not reported consistently from year to year and Ranger Distr ict to Ranger D is t r ic t . These data are gathered t>y ranger staff for their own Ranger Distr icts and compiled in the Forest Distr ict Annual Reports. Stat ist ics Canada gathers employment data by means of annual questionnaires to a sample of logging firms. Since small firms either do not report or are not sampled, i t is l ike ly that Forest Distr ict Annual Reports data are used by Stat ist ics Canada to supplement their employment estimates. If the B.C. Forest Service is inconsistent in reporting their employment data, Stat ist ics Canada estimates wi l l be signif icantly affected since the majority of logging firms are quite small in the inter ior . Lacking better data, logging productivity for~the study region was assumed to be 55.65 M cf per man-year in 1965.— The. optimum number and sizes of machines which should be used to achieve least unit costs depend on the nature of the timber, terrain and numerous other factors. It is generally believed that there are constant returns to scale in logging. Constant returns to scale occur-when, in the long-run, doubling output requires 136 doubling every input, given the state of technology and production process. In the long-run, a l l factors of production, including capital equipment, land and management, are variable. Therefore, for a given set of logging conditions, average logging costs w i l l be constant regardless of the size of output and provided that the production unit is operating at capacity. In 1965, the cost of logs, which were harvested in accessible, good quality sawlog stands in the southern interior and hauled 20 miles to the sawmill, was at least $16 per C cf for most operators (Smith, 1968). In order to account for areas in the study region where logging costs are generally higher because of rougher terrain, poorer timber quality and long hauling distances, i t was assumed that the average logging cost in the study region in 1965 was $20 per C cf . (b) Logging Productivity and Employment in 1971 To determine the effects of the close ut i l i zat ion policy on logging costs and employment, i t was only possible to speculate on some of the short-run effects for any given forest area, regardless of the size of the operation and s k i l l of loggers. In the long-run, operators could be expected to make some adjustments to their logging methods to keep costs at least somewhere near their former levels. Increases in fe l l ing costs could be expected to be negligible as a result of logging to a one-foot stump and a six^inch diameter top CMcIntosh, 1968). However, fe l l i ng costs per C cf increases with 137 decreasing stem dbh. The fe l l ing time per C cf for 8-inch dbh trees is twice that for 11-inch dbh trees (Mcintosh and Csizmazia, 1965). Small trees are also generally branchier than large trees and take more time to limb. Fell ing time would be further increased by the need to take more care to prevent breakage of small trees and longer top logs (Mcintosh, 1968). Since fe l l ing accounts for a major proportion of the logging costs, employment per C cf could be expected to increase as a result of logging to close tu i l i zat ion standards in the short-run and where fe l l i ng cannot be mechanized. Skidding costs could be expected to increase primarily as a result of avoiding breakage of small trees and tops (Mcintosh, 1968). Skid t ra i l s must be straight and spaced such that trees can be fel led parallel to skid t ra i l s and then skidded with a minimum of deflection. Increases in costs of skid t r a i l construction may be compensated by an increase in volume recovered per acre logged. As there would be more stems in a given turn volume, more chokers must be set per turn, and additional loggers may be required to hook-up turns. Care to prevent breakage would also have to be exercised in loading and unloading logs onto and off trucks (Mcintosh, 1968). Loading costs may be increased as a result of having to handle smaller pieces. Landing construction costs may be increased because larger landings would be required to accommodate a greater number 0 f pieces per unit volume and more debris. Scaling costs would also be expected to be higher due to the large number of pieces handled per unit volume. However, 138 weight scaling, being introduced into - the inter ior at that time, was expected to help to reduce scaling costs (Smith, 1968). Trucking costs would be expected to increase as a result of the d i f f i cu l t y of building loads from smaller pieces. If loading time per load increased, the volume which could be hauled by each truck per day would be decreased. This could be compensated for by building improved logging roads, the cost of which may be just i f ied by faster hauling and by the larger volume per acre harvested. If better grades of roads are not b u i l t , the increased t ra f f i c per acre logged would result in higher maintenance costs. From this brief examination, i t can be concluded that, in the short-run, logging costs and labour requirements per C cf would increase. Smith (1968) estimated that logging costs in smallwood stands are about 30% higher than in good quality saw-log stands. , In order to reduce costs in the long-run, work habits of existing logging crews and equipment would have to be modified (Mcintosh, 1968). Equipment used to harvest Douglas-fir sawlog stands is not suitable for lodgepole stands which generally consist of much smaller stems. The ab i l i t y of any logging firm to adjust, fu l l y to logging smaller trees depends'on the size of i t s operation and diversity of timber types and terrain i t is working i n . Several types of information are required to make a reasonable estimate of the impact of close ut i l i zat ion on logging employment in the long-run. F i r s t l y , a survey of timber types and logging conditions, similar to the land c lassi f icat ion scheme which was developed for the University of B.C. Research Forest at Haney, Br i t ish Columbia by Lacate (1968), should be conducted for the region. 139 Secondly, a study of the su i tab i l i t y of various types of production unit and techniques in different categories of logging conditions should be determined as suggested by Mcintosh and Csizmazia (1965). Thirdly, the structure and behavior of the logging industry should be studied. These three types of information would enable forest policy makers to forecast the logging industry's response to changing timber supplies better than extrapolation of apparent average produc-t i v i t y trends based on aggregate employment and production s ta t i s t i cs . Some information sources which are already available to the B.C. Forest Service included TFL and PSYU working plans, and stumpage appraisals. Lacking this information for use in this study, i t was only possible to estimate the rate of increase in logging productivity from trends and surmise which technological changes would be adopted by 1971. It was reasonable to expect that the trend in productivity from 1962 to 1965 would be reversed between 1966 and 1971. Crawler tractors could be expected to be replaced by wheeled skidders in almost a l l logging firms after 1965. If wheeled skidders were used to skid '80% of the timber harvested in 1971 and i f the results of the study by Mcintosh and Csizmazia (1965) were valid for other timber types and terrain, then skidding productivity would increase by about 80% x 45% or 36%. Since skidding accounts for about 60% of man-hours paid in conventional logging, adoption of wheeled skidders would increase productivity by about 22%. Felling productivity could be expected to decline in stands where hydraulic shears and pulpwood harvesting equipment could not be used. Additional productivity 140 improvements in fe l l ing w i l l probably not be achieved for quite some time in the region. Most of the terrain is too rugged for the eff ic ient use of tree shears and processors. Presently, tree shears have been used to a small degree in the Kamloops Forest Distr ict in some Douglar-f i r and lodgepole pine stands in PSYU's with even terrain such as the Nehalliston (Neighbour, interview, 1973). Productivity in f e l l i n g , limbing and topping in the smallwood portions, which average 39% by volume, would decrease by about one-half and in the entire stand by 39% x 50% or 20%. Since fe l l ing accounts for about 40% of the man-hours paid in conventional legging, the decline in logging productivity could amount to about 40% x 20% or 8%. Therefore, by 1971 total logging productivity could increase by 22% - 8% or 14% i f only wheeled skidders are adopted. Further increases in productivity required to compensate for extra care to prevent breakage during skidding and loading could be achieved by training machine operators to adapt to new conditions. Changing from the B.C. Cubic to the B.C. Firmwood Scale would increase the numerical value of average productivity. The effect of changing over to the Firmwood Scale has been studied for four inter ior species (Table 19). However, these data are not suff ic ient to determine the effect of changing scaling rules on apparent logging productivity in the region. If the volume of the annual harvest increased by 25% by changing to the Firmwood Scale, the estimated average productivity would be 79.13 M cf per man-year in 1971. The actual productivity in the Kamloops Forest Distr ict was apparently 82.88 M cf per man-year in 1971 (Table 18). 141 TABLE 19. Comparison of log scales. Fi rmwood cubic seale Species No. of Logs scaled Lumber cubic scale (%) Douglas-fir 1 2,010 108 Spruce* 780 104 3 Hemlock 417 159 Cedar3 262 152 1. Source: Gunn, e_t al_. (1966). 2. Source: Mcintosh (1968). 3. Source: Dobie, et al_. (1970). 142 In the absence of the close u t i l i z a t i o n , only very small volumes of smallwood would be logged. Fel l ing productivity would not decline and i t is possible that about 80% of the skidding would be conducted with wheeled skidders. Under these assumptions, logging productivity in the study region would be 67.79 M cf per man-year in 1971. I f , as was estimated, average productivity in 1971 was 68 M cf per man-year without the close ut i l i zat ion pol icy, then logging employment would be 1,203 and 1,362 persons, respectively. Since, the reported average productivity in 1965 was 55.65 M cf per man-year, there were 1,281 persons employed in harvesting timber from Timber Sales and TFL's that year. Reported logging employment within the study region on a l l forms of forest tenure declined from 1,958 persons in 1965 to 1,825 persons in 1971. 2. Sawmilling (a) Economies of Scale in Sawmilling During 1960 to 1965, productivity in sawmills in the inter ior of Br i t ish Columbia increased at a compound rate of 1.9% per year (Figure 10). Productivity increased from 0.212 to 0.255 MM fbm per man-year during 1960 to 1965 and from 0.269 to 0.293 MM fbm per man-year during 1966 to 1970 (Table 20). Productivity was improved by substituting capital for some labour. As a result , the proportion of fixed costs increased to the extent that by 1968, given the prevailing product prices and factor costs, sawmills with capacities less than 40 M fbm per 8-hour shi f t became uneconomical to operate (Dobie, 1971). TABLE 20. Sawmilling productivity in the Interior of Brit ish Columbia, 1960-1970 . Total Employees Lumber Production Productivity Year (No. of persons) (MM fbm) MM fbm/man-yr Man-yrs/MM fbm 1960 11,559 2,455 0.212 4,708 1961 11,399 2,664 0.234 4,279 1962 12,032 2,984 0.248 4,032 1963 13,167 3,338 0.254 3,945 1964 14,793 3,603 0.244 4,106 1965 14,918 3,800 0.255 3,926 1966 13,535 3,639 0.269 3,719 1967 11,549 3,196 0.277 3,614 1968 11,736 3,667 0.312 3,200 1969 13,253 3,785 0.286 3,501 1970 13,545 3,973 0.293 3,409 1. Source: Stat is t ics Canada, Sawmills and Planing M i l l s , Cat. No. 35-204, 1960-1970. FIGURE 10. Sawmilling productivity in the Interior of Brit ish Columbia, 1960-1965 (Source: Table 20). 145 Using the survivor technique, Dobie (1971) found that, from 1955 to 1968, there was an increase in the number of sawmills with a capacity greater than 40 M fbm per 8-hour sh i f t in the interior of Br i t ish Columbia. The survivor technique is a method of determining whether there are economies of scale in industries by testing whether there is a s ta t i s t i ca l l y signif icant difference between the distribution of plant sizes at two points in time. These results were verif ied by constructing cost curves using the results of sawmill productivity research and published cost information. Increasing returns to scale, or economies of scale, occur when, in the long-run, doubling output does not require doubling every input, given the state of technology and a certain production process. The generally accepted shape of the long-run average cost (LRAC) curve is convex to the scale axis of "U"-shaped (Figure 11). The causes for the increasing returns or negatively sloping portion of the LRAC curve are as follows (Dobie, 1971; St ig ler , 1966): 1. division and specialization of labour and equipment as plant size increases, 2. improved harmonization of specialized equipment as plant size increases, 3. cost of purchase and instal lat ion of machinery increases less in proportion to the increase in machine capacity, 4. economies associated with large-scale purchases of inputs, . __— _ _ _ _ _ _ — , f Output FIGURE 1 1 . Traditional Long-run average cost curve. 147 5. qualitative as well as quantitative improvement in out-put as plant size increases, and 6. lower administrative costs per unit of output as scale increases. The most frequently given explanation for the increasing portion of the LRAC curve is that after a certain s ize , the plant or firm becomes unwieldly to manage (St igler , 1966). However, there is evidence that the size of plant for which decreasing returns occur have not been achieved yet in sawmilling in Br i t ish Columbia (Dobie, 1971; 1973). Therefore, the LRAC curve for sawmilling appears to be L-shaped (Figure 12). The LRAC curve is an envelope of short-run average cost (SRAC) curves for a given type of sawmill of different capacities (Figure 13). Capacity may be defined in a physical sense as " . . . the maximum attainable output per period of time given the log input, the technical process, and the product." (Dobie, 1971, p. 82). Stigler (1966, p. 157) defined capacity as " . . . the out-put at which short-run and long-run marginal costs are equal," which corresponds to the scale at which the SRAC curve is tangent to the LRAC, However, the economic capacity definition is more d i f f i c u l t to apply empirically than physical capacity. The shapes of the constructed SRAC curves indicate that the two definitions of capacity probably coincide in larger sawmills. These cost curves were also used to make sawmill employment projections for the study region. Output FIGURE 12. "L"-shaped Long-run average cost curve. Output FIGURE 13. Short-run average cost curves for different scales of plant and long-run average cost curve. 150 In order to ensure that valid cost comparisons would be made between different sizes of sawmills, Dobie (1971) divided his study sawmills into three groups on the basis of log input (Table 21). TABLE 21. Study sawmills used by Dobie (1971). Sawmill Sawmill Type Log Diameter Limits Log Length Limits Group (inches) (feet) I coastal sawmills 10-24 10-24 II inter ior sawmills 6-23 12-20 III small log sawmills 4-12 12-20 The coastal group included c i rcular , band and log gang sawmills which processed hemlock. The inter ior group included only circular saw-mil ls which processed Douglas-fir. The small log group included scrag and chipper headrig sawmills which processed a mixture of white spruce (Picea glauca (Moench) Voxx.), lodgepole pine (Pinus  contorta Dougl. var. l a t i f o l i a Engelm. and alpine f i r (Abies  lasiocarpa (Hook.) Nutt.) . Most of the sawmills were completely se l f -contained, produced chips and rough, green lumber and were independently operated (Dobie, 1973, interview). A l l of the inter ior and small log sawmills, except for two, were located in the southern inter ior of Br i t ish Columbia. For each of the study sawmills, Dobie (1971) calculated lumber productivity, in M fbm per hour, using regression equations 151 of sawmill productivity on log size and the size distribution of specific log inputs. The log inputs of each sawmill group con-sisted of the total logs processed in the sawmills during the research into the effect of log size on sawmill productivity. Then, using published costs of productive factors, the average costs of operating each sawmill for one, two and three shifts for 240 days per year were determined. F inal ly , the average costs of each sawmill were plotted over yearly production and retabulated by 5 MM fbm per year production classes (Tables 22 and 23). Data for coastal sawmills were not reproduced because the present study deals with an interior region. Cost curves for study sawmills 18, 19 and 20 i l lus t rate that SRAC of each sawmill declines rapidly as yearly production increases up to a certain point (Figure 14). After this scale of output, i t is probable that no further production can be coaxed from the sawmill without incurring extremely high unit costs. Therefore, according to the physical def in i t ion, capacity of the sawmill is the output at which SRAC is minimum. I t . i s d i f f i c u l t to determine the exact tangency points between the SRAC curves and the LRAC curve. Since the LRAC for sawmills appears to be L-shaped, economic capacity w i l l approach physical capacity at LRAC becomes constant. The declining positions of the SRAC curves tend to support the results of the survivor analysis that there are increasing returns to scale in sawmilling. There is also some evidence that there are separate economies of scale in labour, power, management and plant (Dobie, 1971). As capacity increases, the number of TABLE 22. Manufacturing costs per M fbm of lumber for circular saw sawmills . Annual Study Mi l l Number' Production • ($ M/fbm) MM fbm 1 22 30 31 32 10 43 39 39 40 39 15 34 30 31 30 30 20 28 26 27 26 27 25 25 24 25 24 24 30 23 22 35 21 40 20 45 19 1. Source: Dobie (1971) pp. 77-102. 2. Study mil l numbers refer to sawmills studies by Dobie, op. c i t . . TABLE 23. Manufacturing costs per M fbm of lumber for small log sawmills . Annual Production Study Sawmill Number ($ per M fbm) 2 MM fbm 16 18 19 21 23 24 17 20 25 10 36 36 61 37 38 66 40 40 37 20 25 25 34 28 27 39 27 28 27 30 20 25 22 21 27 22 21 21 40 21 18 17 22 18 18 50 18 16 19 16 16 60 15 17 14 70 13 15 80 12 14 90 11 13 100 12 1. Source: Dobie, 0p_. C i t . , P. 107. 2. Mil ls no. 17, 20, and 25 are scrag mi l l s , the rest are chipper headrig sawmills. 154 6 Q R 10 h O I i I i I i 0 20 40 60 80 too Prodwcvtioin. per Year (MM fbm) FIGURE 14. Production cost related to sawmill capacity for three small log sawmills (After Dobie, op_. c i t . ) . 155 man-hours per unit of output decreases (Table 24). Average cost w i l l decrease as the size of plant increases only i f the mi l l is operated at capacity. For example, the average cost of operating study mil l number 18 at capacity is less than producing the same level of output in mil l number 19 which has a larger capacity (Figure 14). A rational sawmill investment decision maker must take into account the costs of processing the volume and size distribution of his timber supply in various available sizes and types of sawmills. Many small sawmill firms were forced to exit from the industry primarily because they had insuff icient timber supplies to just i fy expansions to achieve economies of scale which were required to remain competitive. The number of sawmills in Brit ish Columbia during 1955 to 1965 decreased from 2,489 to 1,191. During the same period, total capacity in Brit ish Columbia decreased from 28,016 to 26.729 M fbm per 8-hour sh i f t . Concurrently, lumber production continued to increase (Table 25). These trends indicate that capacity was being concentrated into fewer mil ls and more fu l l y u t i l i zed . Many larger firms acquired smaller firms while other firms merged to increase their timber supplies to just i fy sawmill expansions (Wood, 1970). (b) Effects of the Close Ut i l izat ion Policy on Sawmilling Productivity The close ut i l i zat ion policy was expected to accelerate the trend toward fewer and larger sawmills operating near capacity. TABLE 24. Number of employees per establishment in sawmills-,and planing mills in British Columbia, 1967 and 1968 . Shipments per Establishment Production and Related Workers Administrati on Office and Sales Workers per MM fbm Value of Shipments ($) MM fbm 1967 1968 1967 1968 100,000- 199,999 1.25- 2.50 7.36-3.68 7.40-3.70 1.06-0.53 1.15-0.58 200,000- 499,999 2.50- 6.25 6.78-2.71 7.10-2.84 0.86-0.34 0.98-0.39 500,000- 999,999 6.25-12.50 4.80-2.40 4.46-2.23 0.57-0.28 0.54-0.27 1,000,000-4,999,999 12.50-62.50 6.36-1.27 5.55-1.11 0.77-0.15 0.65-0.13 5,000,000- 62.50- 5.96- 4.86- 0.61- 0.52-1. Source: Statistics Canada, Unpublished Data, Forestry Statistics Section, Ottawa, Ontario. TABLE 25. Operating sawmill and lumber production in Brit ish Columbia, 1955-1971 . Estimated 8-Hour Lumber Daily Capacity Production Year Number : (M fbm) (MM fbm) 1955 2,489 28,016 4,914 1956 2,435 29,080 4,735 1957 2,255 26,752 4,412 1958 2,010 27,694 4,850 1959 2,005 28,280 4,949 1960 1,938 29,432 5,305 1961 1,778 29,025 5,620 1962 1,627 28,234 6,004 1963 1,541 29,339 6,734 1964 1,417 28,865 7,095 1965 1,191 27,641 7,449 1966 1,116 26,729 7,319 1967 931 22,757 7,110 1968 902 22,822 7,811 1969 974 23,432 7,696 1970 881 23,670 7,764 1971 627 24,315 8,970 1. Source: Stat ist ics Canada, Sawmills and Planing M i l l s , Cat. No, 35-204, 1955-1971. CO 159 Since the feed rate in conventional sawmills for small logs is much ; slower than for larger logs (Dobie, 1971, 1968, 1967; Dobie et a l . , 1967), i t was expected that many firms would insta l l small log sawmills to process the increased volume of smallwood economically. Only firms which had adequate smallwood supplies to just i fy investing in a small log sawmill of economical size were expected to remain in the industry (Wil l iston, 1966c). Without the close ut i l i zat ion policy, i t is conceivable that only a few firms which held quotas in PSYU's containing a large proportion of lodgepole pine, such as the Nehalliston, would insta l l small log sawmills. In 1965, B.C. Interior Sawmill Ltd. had a Chip'n Saw headrig sawmill with a daily capacity of 40 M fbm.. It could be expected that i f the price of chips was adequate, firms located within PHA No. 2 which have suff icient sawmill capacity would insta l l barkers and chippers to supply the existing pulpmill with an adequate chip supply. It has been found that sawmills must have a daily capacity of over 30 M fbm to just i fy the instal lat ion of barking and chipping equipment (Smith, 1968). Assuming a lumber recovery factor of 7.5 board feet per cubic foot of log input, lumber production in.1971 would be 653.789 MM fbm or 148.575 MM fbm, more than in 1965. It was assumed that a l l the timber 4n the present analysis consist of sawlogs. Therefore, a larger lumber recovery factor is used in this analysis than in Chapter III . If productivity of labour in sawmilling continued to increase at 1.9% per year, (Figure 10), productivity in 1971 would be 0.285 MM fbm per man-year. As a result , sawmilling employment in 1971 would be 2,295 persons, 160 or 314 persons more than in 1965. The change in employment from 1965 to 1971 under the close, ut i l i zat ion policy was estimated empirically as well as by extrapolating productivity trends, because i t was expected that the policy would cause the trend toward larger capacity and small log sawmills to accelerate. The change in employment was determined empirically by 1. predicting the structure of the industry in 1971, 2. estimating the productivity of the restructured industry, and 3. determining the change in employment caused by the change in productivity. The change in industry structure was estimated on the basis of investment decisions facing the original firms of 1965. It was assumed that firms wi l l insta l l small log sawmills with barking and chipping equipment i f the increase in revenue was greater than their increased sawmilling costs. Al l firms which could not afford to insta l l a small log sawmill would either (1) saw their additional smallwood portions in conventional sawmills and insta l l barking and chipping equipment, or (2) exit from the industry i f they could not afford to insta l l barking and chipping equipment. (i) Lumber Production The potential change in annual lumber production was determined by using average lumber recovery factors for sawlogs and 161 smallwood. The lumber recovery factor in circular sawmills increases as log diameter increases, while i t is almost constant for a l l diameters in scrag and chipper-headrig sawmills (Dobie, 1971). Lumber recovery also varies among sawmills and with log quality. Since the Firmwood Cubic Scale does not allow deductions for lumber defects, the lumber recovery in 1971 for a given log input and sawmill was less in 1971 than in 1965. Lumber recovery factors were assumed to be 5.5 and 7.0 board feet per cubic foot of log input for smallwood and sawlog volumes respectively (Dobie, interview, 1972). Lumber recovery was reduced more for smallwood than for sawlogs because the smallwood volume, as i t was defined in this study, includes a larger proportion of wood which is unsuitable for sawing into lumber than the sawlog volume. Lumber production decreased by 91.8 MM fbm from sawlogs and increased by 201.1 MM fbm from smallwood (Appendix II I) . ( i i ) Average Revenue from Mil l ing Smallwood The price of the numerous species, grades and sizes of lumber varies widely. Rather than calculate an average lumber price from price l i s t s , or use the average price of an "indicator" lumber species, such as spruce in the inter ior , an average lumber value for 1965 was determined by dividing the value of Br i t ish Columbia lumber exports by the quantity exported (Dept. of Industrial Development, Trade, and Commerce, 1972c). This average value, $72 per M fbm, excludes insurance and freight charges. 162 Although this value is not comparable to the sel l ing price, i t probably approximates the average revenue realized by sawmilling f i rms. The price for chips received by sawmill operators in the Kamloops region in 1966 varied from $9.50 to $10.00 per oven dry unit, including freight charges (Christ ie, 1967). An interior oven dry unit is equal to the quantity of chips which weighs 2,400 pounds when a l l the moisture has been removed. Smith (1968) reported that a cost and profit study, conducted by Price Waterhouse and Co, for the Northern Interior Lumberman's Association (NILA), revealed that, in 1966, net chip revenue of 13 NILA mil ls from 165,000 oven dry units of chips was $8,70 per unit. . It was assumed that $8.70 per unit was also realized by sawmill operators in the Kamloops region. The average recoveries of chips per M fbm of lumber output in scrag and chipper headrig sawmills are 0.52 and 0.66 cubic feet sol id wood equivalent respectively (Dobie and Wright, 1972). In the inter ior , the average sol id wood equivalent of one oven dry unit of chips is about 100 cubic feet for a l l species (Dobie, et al_., 1970). Average revenue of chips per M fbm of lumber from scrag and chipper headrig sawmills was $4.52 and $5.74 respectively. Total average revenue of lumber and chips per M fbm for scrag and chipper headrig sawmills was $76.52 and $77.74 respectively. Assuming that logging costs are $20 per C cf , the average wood cost was $42.96 per M fbm which leaves an average revenue from processing smallwood of about $34 per M fbm. 163 ( i i i ) Additional Costs of Processing Smallwood Cost increases of firms which instal led small log sawmills possibly included, besides instal l ing and operating the new m i l l , additional management personnel, log yard space, planer and dry k i ln f a c i l i t i e s and the loss of lumber production from sawlog volumes. The loss of production of sawlog volumes may make expansion of the other cost items unnecessary. Lacking more complete cost data, only the added cost of the small log sawmill was estimated using the cost curves constructed by Dobie (1971). Potential lumber production from smallwood for individual firms ranged from 0.01 to 16.1 M fbm. Study mil l number 18, which has a daily capacity of 35 M fbm, provided the lowest average cost throughout this range of annual output. The annual output required to break even with this sawmill is about 10 MM fbm. Additional costs of firms which could not afford to insta l l a small log sawmill resulted mainly from processing small logs in their conventional sawmills. Although their increased cost could be estimated by using the results of productivity research, this was not done for this study. Instead i t was assumed that firms with sawmills having a daily capacity of over 30 M fbm and which could not afford to ins ta l l a small log sawmill could afford to process smallwood in their conventional sawmills and insta l l barking and chipping equipment. 164 (iv) Sawmill Industry Structure in 1971 The daily capacities of sawmills of firms which could insta l l small log sawmills were increased by 35 M fbm. The daily capacities of those firms which could only afford barking and chipping equipment were le f t unchanged from their levels in 1965. Firms which could not afford either of these investment alternatives were deleted from the industry. As a result , the number of sawmills in the region declined from 49 in 1965 to 23 in 1971, primarily because a l l firms with sawmill capacities less than 21 M fbm exited from the industry (Table 26). Concurrently, average daily capacity increased from 43 to 88 M fbm. Such a drastic change would be moderated i f the smaller firms which could not afford to operate to close ut i l i zat ion standard had been able to find alternative timber supplies. In 1971, there were actually 20 sawmills in the study region with daily capacities over 21 M fbm and 21 sawmills with daily capacities less than 21 M fbm (Table 26). Average daily capacity was 55 M fbm. A majority of the small sawmill firms held very small quotas in 1971, such that they either operated intermittently or had other sources of timber. Therefore, i f average capacity in 1971 had been weighted by annual lumber production instead of number of sawmills, i ts value would probably be closer to 88 rather than 55 M fbm per 8-hour sh i f t . TABLE 26. Distribution of sawmills in the study region of firms with quotas and Tree Farm Licences. 1965' 19712 1971 Estimated Sawmill No. of Cum. No. of Cum, No. of Cum. 8-hour Mi l ls d i s t r ib . Mil ls d is t r ib . Mil ls d is t r ib . Capaci ty (M fbm) 5 - 10 6 0.123 10 0.245 0 0.000 11 - 20 15 0.430 11 0.514 0 0*000 21 - 30 5 0.532 0 0.514 1 0.043 31 - 40 4 0.614 1 0.538 4 0.218 41 - 50 4 0.696 3 0.611 3 0.348 51 - 60 3 0.757 1 0.635 1 0.391 61 - . 70 3 0.818 4 0.733 3 0.521 71 - 80 3 0.879 1 0.757 2 . 0.608 81 - 90 ^ 1 0.899 0 0.757 0 0.608 91 - 100 0 0.899 1 0.781 2 0.695 101 no 0 0.899 1 0.805 0 0.695 m - 120 121 - 130 131 - 140 141 - 150 151 + 1 2 1 0 1 0.919 0.960 0.980 0.980 1.000 0 0 1 2 5 0.805 0.805 0.829 0.878 1.000 2 1 0 0 4 0.782 0.825 0.825 0.825 1.000 Totals 49 41 23 1. Source: Table 5 2. Source: Table 8 167 (v) Sawmilling Employment in 1971 The number of persons employed per establishment by sawmill size was determined using production and employment data for the circular sawmills and mil l number 18 studied by Dobie (1971) and five other sawmills obtained from an unpublished Stat ist ics Canada (1968) study (Table 27). Employment data for Dobie's study sawmills only included mil l f loor workers. Therefore, the number of planer m i l l , dry k i l n , log yard, lumber yard and administrative employees remained to be estimated. In 1965, 1,237 of 5,093 persons, or 24%, employed in sawmills and planing mills in the Kamloops Forest Dist r ic t were employed in planing mil ls (Kamloops Forest Distr ict Annual Report, 1965). The proportion of production workers, other than those on the mil l f loor , is probably closer to 30%. Eleven percent of the total employees in the five sawmills included the Stat ist ics Canada study were in administrative, office and sales positions. It was assumed that these proportions'were similar in a l l sawmills with dai ly : capacities of over 21 M fbm. The number of man-years employed per MM fbm of annual lumber production was plotted over sawmill scale in MM fbm so that the employment could be determined for any sawmill size (Figure 15). Ideally, regional sawmilling employment would be calculated by summing employment in each of the sawmills which were expected to be active in 1971. However, the range of the available data was too small to extrapolate to other sawmill sizes. Furthermore, there was no way to predict mergers and acquisitions which would occur during 1966 to 1971. Therefore, an aggregate TABLE 27, Employment by sawmill s ize . Study Daily Yearly M i l l Floor Other Administrative Total Man-Years Sawmill Capacity Production Employees Production Employees Employees per No. (M fbm) (MM fbm) Employees MM fbm 22 1 37.6. 27 42 18 7 67 2.48 30 1 39.2 28 45 19 8 72 2.57 32 1 41.6 29 45 19 8 72 2.48 31 1 48.0 34 45 19 8 72 2.12 1 1 65.6 47 54 23 8 85 1.81 i t . Can. 55 39.5 9 90 2.28 18 1 35.2 25 36 15 6 57 1.58 Source: Dobie, op_. c i t . , Page 88. -2. Source: Stat ist ics Canada, Unpublished data, Forestry Statist ics Section, Ottawa, 1968. for f ive Br i t ish Columbia interior conventional sawmills. 169 3.00 r 2.501 2.00L 150 -1-00 -50 -O J 1 1 1 1 L_ SO 30 40 50 60 Yearly Lumber Production C MM ?bm) FIGURE 15. Labour requirements by sawmill scale (Source: Table 170 approach had to be followed. It was estimated that, in 1971, of 201.1 MM fbm of lumber sawn from smallwood volumes, 55.6 MM fbm would be produced by conventional sawmills, 103.1 MM fbm would be produced in small log sawmills and 42.4 MM fbm would be produced in sawmills owned by firms which acquired the quotas of firms which were predicted to exit from the industry. It was assumed that the firms with small log sawmills would acquire the quotas of firms which had le f t the industry. The average daily capacity of conventional sawmills which processed smallwood was 53 M fbm and required 2.15 man-years to produce one MM fbm of lumber. A l l small log sawmills were assumed to have an average daily capacity of 35 M fbm which required 1.58 man-years per MM fbm of lumber produced. The average daily capacity of sawmills processing sawlog volumes was 76 M fbm which required 1.76 man-years per MM fbm of lumber produced. Using these employment per MM.fbm rat ios , i t was estimated that, under the close ut i l i zat ion policy, sawmilling employment in 1971 amounted to 1,038 persons (Table 28). This was 943 persons less than in 1965 and 1,257 less than in 1971 without the policy. If productivity of labour in sawmilling increased annually at a compound rate of 1.9% (Figure 10), productivity in 1971 would be 0.285 MM fbm per man-year. As a result , sawmilling employment in 1971 under the close ut i l i zat ion policy would be 2,038 persons. This was 57 persons more than in 1965 and 257 persons less than estimated in 1971 without the policy. Actual sawmill employment in the study region, reported in TABLE 28. Employment in sawmilling in 1971. Sawmill Type Conventional Sawmi11 Small Log Sawmill Sawlogs Lumber Production (MM fbm) z Average Sawmill Daily Capacity (M fbm per 8-hours) 3 Man-Years Per MM fbm Employment (No. of Persons) 379.8 76 1.76 688 Log Input 1 Smallwood Smallwood 55.6 53 2.15 120 145.5 35 1.58 230 Totals 580.9 88 1.79 1,038 1. Firms l is ted in Appendix III with less than 10 MM fbm lumber production from smallwood are assumed to saw smallwood in conventional sawmills. 2. L.R.F. for sawlogs is 7.0; for smallwood, 5.5. 3. Source: Table 27 and Figure 15. 172 the Kamloops Forest Dist r ic t Management Annual Reports of 1965 and 1971, increased from 2,356 persons in 1965 to 2,603 persons in 1971, or by 10%. The estimated and actual changes in employment are not s t r i c t l y comparable because the actual data include employment in sawmills which was accounted for by timber inputs logged on tenures besides TFL's and (quota) Timber Sales. Regional Employment in 1971 Under the close ut i l i zat ion policy, i t was estimated, using 1965 data, that there were 154 more logging jobs and 257 to 1,257 less sawmilling jobs in 1971 in the study region than there might have been without the policy. The proportion of jobs in logging and sawmilling which was basic was 49% and 88% respectively such that the net decrease in basic employment was 182 to 1,182 jobs. The value of the employment mult ipl ier (3.05) was judged to be an over estimate for the study region in 1966. It is l ike ly that the value of the multipl ier would s t i l l be less than three in 1971. Therefore, i t is only possible to state that, using the empirical estimate, under the close ut i l i zat ion policy, there were between 1,182 and 3,546 fewer jobs in the study region in 1971 than there might have been i f the policy had not been implemented. Using the extrapolated sawmill employment estimate, under the close ut i l i zat ion policy, there were between 182 and 546 fewer jobs in the study region in 1971 than there might have been i f the policy had not been implemented. In 1971, there were an estimated 29,274 persons employed 173 within the Kamloops Manpower Centre Area (Roussel, interview, 1973). This area is equivalent to the study region without the Shuswap Lake-Salmon Arm Area of Region Six. Therefore, without the close ut i l i zat ion policy there might have been approximately between 4% and 12% more persons employed in the study region in 1971, using the empirical sawmill analysis, and between 0.6% and 1.8% more persons using the extrapolated sawmill analysis Effect of the Close Ut i l i zat ion Policy on the Level of Employment in 1980 Timber Supply In the absence of the close ut i l i zat ion policy, annual harvests from Timber Sales and TFL's were assumed to continue to increase at a compount rate of 4.4% during 1965 to 1980 such that the 1980 timber supplies would be 128,436 M cf for sawmilling and 136,024 M cf for logging. These volumes are both less than the allowable annual cuts, calculated to close tu i l i zat ion standards, of PSYU's and TFL's in the study region, but indicate that more smallwood must be logged in the future than in 1971. If i t is assumed that smallwood w i l l be sawn in small log sawmills and sawlogs in conventional sawmills which have average lumber recovery factors of 6.6 and 7.5 board feet per cubic foot of log input respectively, and that 25% of the annual harvest would be smallwood, then, regional lumber production in 1980 would be 800.2 MM fbm. The close ut i l i zat ion policy requires- that, after 1971, a l l trees must be logged to a 4-inch diameter top and a l l logging waste 174 w i l l be charged against allowable annual cuts. Further increases in annual harvests w i l l depend upon when trees less than 7-inches dbh can be logged economically. In the study region, where fu l l mechanization of logging is unlikely to take place by 1980, logging costs for these smaller trees can be expected to be mich higher than for trees 7.1 inches dbh and over. Therefore, unless lumber prices increase suff ic ient ly to just i fy logging these smaller trees, the volume of trees under 7.1-inches dbh which are harvested w i l l depend on the wood requirements of the Kamloops pulp m i l l . The allowable annual cut of PHA No. 2, calculated to close ut i l i zat ion standards with a 6-inch diameter top, is 150,585 M cf per year. If 39% of the allowable annual cut were processed in small-log sawmills with an average chip y ie ld of 35%, and i f 61% of the allowable annual cut were processed in conventional sawmills with an average chip y ie ld of 30%, the maximum annual y ie ld of chips from PHA No. 2 would be 48,311 M cf. Assuming that 190 cubic feet of green wood are required to produce one short ton of air -dry screened and bleached kraft pulp (Dobie and Wright, 1972), the potential y ie ld of chips from sawmills operating to close ut i l i zat ion stands in PHA No, 2 is suff ic ient to produce 300,907 short tons of a i r -dry , screened and bleached kraft pulp per year. Additional chips could be purchased from sawmill firms which process timber from neighbouring PSYU's and TFL's or chips could be produced from pulpwood. It can be concluded that, although i t w i l l be unnecessary to log less than 7.1-inch dbh trees, a l l operators within PHA No. 2 and others within chip hauling distance of the pulp mil l must operate 175 to close ut i l i zat ion standards in order to keep the Kamloops pulp mil l operating at fu l l capacity. Therefore, i t was assumed that, in 1980, the entire allowable annual cut of the study region w i l l be logged to close u t i l i za t ion . The same conclusion was reached by the B.C. Forest Service. In 1971, i t became mandatory for a l l firms in PHA No. 2 to operate to close ut i l i zat ion standards in order to assure that the Kamloops pulp mil l would have a suff ic ient chip supply. The awarding of TSHL's and third-band wood were also measures toward this end. The volume of timber supplies in the region in 1980 for logging w i l l be 180,034 M cf , after deducting the Forest Service Reserve. If 90% of the allowable annual cut of PSYU's in the region w i l l be processed in sawmills located in the study region, the volume of timber available, in 1980, for sawmilling w i l l be 166,018 M cf . If a l l of the smallwood volume is processed in small log sawmills and a l l of the sawlog volume, in conventional sawmills, and i f small log and conventional sawmills have lumber recovery factors of 5.5 and 7.0 board feet pet cubic foot of log input, lumber production from timber harvested from regional PSYU's and TFL's w i l l be 899.0 MM fbm. Logging Productivity in logging is not l ike ly to increase s i g n i f i -cantly beyond the levels which were estimated for 1971 because mechanization beyond the use of wheeled skidders does not appear 176 feasible in the region and timber quality w i l l continue to decline. Therefore, i t was assumed that improvements in logging technology which are suitable for adoption in the region wi l l be suff ic ient to maintain productivity at 80 and 68 M cf per man-year with and without the close ut i l i zat ion policy respectively, until 1980. Under these assumptions, logging employment in 1980 wi l l be 2,250 and 2,000 persons with and without the close ut i l i zat ion policy respectively. Actual employment and log production data indicate that, in 1971, average productivity in logging in the Kamloops Forest Distr ict was 82.88 M cf per man-year. If the volume of the annual harvest increased by 25% by changing to the Firmwood Cubic Scale, average productivity without the close ut i l i zat ion policy would be 62 M cf per man-year in 1971. If i t is also assumed that productivity wi l l remain relatively constant unti l 1980, logging employment wi l l be 2,172 and 2,194 persons with and without the close ut i l i zat ion policy. Therefore, according to actual 1971 employment and log production data, implementing the close ut i l i zat ion policy in 1966 may have l i t t l e impact on logging employment by 1980. According to 1965 information, there w i l l be 250 more logging jobs in 1980 than there would be i f the policy had not been implemented. Sawmilling Productivity can be expected to increase as older sawmills are replaced by larger, automated sawmills with faster feed-rates. Most of the new sawmills in the interior are expected to have capacities 177 of between 100 and 200 M fbm per 8-hour sh i f t (Dobie, 1973). If , in the absence of the close ut i l i zat ion policy, productivity continued to increase from i ts 1965 level of 0.225 MM fbm per men-year at 1.9% per year, average productivity would be 0.338 MM fbm per man-year and there would be 2,367 persons employed in sawmilling in the region in 1980. Under the close ut i l i zat ion policy, average productivity in sawmilling in 1971 was estimated empirically to be 0.560 MM fbm per man-year. If productivity increases from its estimated 1971 level at 1.9% per year, average productivity would be 0.663 MM fbm per man-year and there would be 1,356 persons employed in sawmilling in the region in 1980. Based on the empirical estimate, there w i l l be 1,011 fewer sawmilling jobs in the study region in 1980 as a result of implementing the close ut i l i zat ion policy in 1966. If , under the close ut i l i zat ion policy productivity is extrapolated from its 1965 level to 1980 of 1.9% per year, productivity would be 0.338 MM fbm per man-year and there would be 2,660 persons employed in sawmilling in the region in 1980. This estimate suggests that there w i l l be 293 mere sawmilling jobs in the study region in 1980 as a result of implementing the close ut i l i zat ion policy. Actual sawmilling production and employment data for the interior of Br i t ish Columbia indicate that'productivity increased from 0.255 to only 0.293 MM fbm per man-year during 1965 to 1970 (Statist ics Canada, Cat. No. 35-204). This trend implies that more small sawmills remained in the industry than was estimated. There are several reasons for th is . F i r s t l y , up to 1971, the close ut i l i zat ion 178 policy was implemented on a voluntary basis. Therefore, many smaller sawmilling firms continued to operate to intermediate ut i l i zat ion standards. Secondly, several new sawmills which would replace smaller plants were s t i l l under construction or in the planning stage. For example, construction of Weyerhaeuser Canada Ltd. 's new 200 M fbm per 8-hours capacity sawmill at Vavenby had just begun in 1970. This mil l replaced the company's two older 65 M fbm per 8-hour capacity sawmills at Blue River and Avola. Thirdly, the price of lumber increased to an unprecedented high level in 1969 and induced many marginal sawmills to re-enter the market. Unless current lumber prices are high enough to allow small sawmill firms to insta l l chippers and barkers, these firms w i l l probably be prevented by economies of scale barriers from entering the market again. After 1965, the number of sawmills in Br i t ish Columbia declined steadily from 1,116 to 902 in 1968 (Table 25). In 1969, the number of sawmills increased to 974, after which i t declined steadily again. These short-run fluctuations make i t impossible to establish a rel iable average productivity trend. However, i t is unlikely that small sawmills w i l l s ignif icantly influence average productivity of the industry in the region in the future. Mandatory adoption of the Firmwood Cubic Scale and close ut i l i zat ion standards w i l l deprive most smaller firms of their timber supplies. Therefore, employment in 1980 may be near the empirically estimated level . However, i t can only be concluded that the close ut i l i zat ion policy w i l l result in there being between 293 more and 1,011 fewer saw-mil l ing jobs in 1980 than there might have been without the policy. 179 Pulp Mil l The close ut i l i zat ion policy made i t possible for Weyerhaeuser Canada Ltd. to just i fy the expansion of i ts pulp mil l from 250 to 1,250 tons of bleached kraft pulp per day by assuring the company of an adequate chip supply. It was in the company's long-term interest to expand i ts pulp mil l because one of the sections in the PHA No. 2 agreement entit led the Minister to grant another applicant which was interested in establishing a second mil l in the area the option to purchase pulpwood in PHA No. 2 which was not being ut i l i zed (Fowler, 1966). Costs estimated by R.A. Daley and Co. (1969) indicate that there are economies of scale in pulp manufacturing. This study stated that to achieve an average manufacturing cost of $106 per ton in 1965 required a mil l capacity of 100,000 tons per year operating at 90% of capacity. To maintain a unit cost of $106 per ton in 1968 required a mil l capacity of 250,000 tons per year operating at 90% of capacity. Therefore, i t seems l ike ly that Weyerhaeuser's mi l l may have become marginal i f i t had not been expanded to more than double i ts i n i t i a l capacity. The market expectations for the pulp industry for the 1970's is not optimistic (G. Tower Fergusson L td . , 1972). As a result of high demands for pulp in the early 1960's, world pulp mil l capacity increased rapidly. After 1966, world demand for pulp declined with the result that average operating rates have declined. Since 1967, average operating rates have fluctuated between 80% to 90% of annual pulp mil l capacity. During 1970 to 1972, low returns on investment, 180 low demand for pulp and new government anti -pol lution regulations resulted in postponement of several previously scheduled expansions. With such low expectations, i t seems l ike ly that without an assured adequate chip supply, the capacity of the Kamloops pulpmill would not have been expanded to 1,250 tons per day unti l market expectations improved or until an adequate chip supply could be developed. Therefore, without the close ut i l i zat ion policy, pulp mil l employment in 1980 would have remained at 235 persons. With the close u t i l i z -ation policy, employment in 1980 wi l l be 400 persons. The same conclusion could have been arrived at with information known in 1965. Regional Employment in 1980 On the basis of 1965 information, i t was estimated using the empirical sawmill employment analysis that, in 1980, there w i l l be 250 more legging jobs, 1,011 less sawmill jobs, and 165 more pulpmill jobs as a result of the close ut i l i zat ion policy. Using the extrapolated sawmill employment analysis, there w i l l be 293 more sawmilling jobs. Recent data indicated that there w i l l be 22 more legging jobs in 1980 as a result of the policy. It was assumed that the base ratios of individual industrial groups w i l l not change appreciably during 1961 to 1980. According to 1965 information and using the empirical sawmill employment estimate, there wi l l be 622 less basic jobs in 1980 as a result of the close ut i l i zat ion policy, compared to 526 more basic jobs as estimated by using the extra? polated sawmill employment. According to more recent information and using the empirical sawmill estimate, there wi l l be 756 less basic 181 jobs in 1980 as a result of the policy compared to 392 more jobs estimated using the extrapolated sawmill employment. The value of the regional employment mult ipl ier is unlikely to exceed three by 1980, although i t may be larger than i t was in 1966 or 1971. Therefore i t is possible to state that the impact of the close ut i l i zat ion policy on regional employment in 1980 wi l l be between 622 and 1,866 less jobs using 1965 data and the empirical sawmill employment estimate, between 526 and 1,578 more jobs using 1965 data and the extrapolated sawmill employment estimate, between 756 and 2,268 less jobs using recent data and the empirical sawmill employment estimate, and between 392 and 1,176 more jobs using recent data and the extrapolated sawmill estimate. The labour force in the Kamloops Manpower Centre Area is expected to increase at a compount rate of 8.4% during 1971 to 1977 (Roussel, interview, 1973). If the labour force continues to increase at this rate, the labour force wi l l consist of 65,089 persons in 1980. Assuming that 6% of the labour force w i l l be unemployed, there w i l l be 61,183 persons employed in the area in 1980. Therefore, as a result of the close ut i l i zat ion policy, i t was estimated, using the empirical sawmill employment analysis and both 1965 and recent data, that there w i l l be between 1% and 3% fewer persons employed in the study region in 1980. Using the same data, but using extrapolated sawmill employment analysis instead, i t is estimated that there wi l l be between approximately less than 1% and 2% more persons employed in the study region in 1980 as a result of the close ut i l i zat ion policy. 182 It appears that by 1980 both the absolute and relative impacts of the close ut i l i zat ion 'pol icy wi l l have diminished. One reason for this result is the pulp mil l expansion. By about 1980, without the close ut i l i zat ion pol icy, changes in forest industry structure and market demands which would have resulted from economic forces alone would have led to the same levels of annual harvests, tree sizes harvested, average productivity, and average sawmill capacity as had been achieved ear l ier by implementing the policy. 183 CHAPTER V CONCLUSIONS Mult ipl ier Analysis Although the economic base study used in conjunction with location quotients provide the most inexpensive and least time consuming method of modelling a regional economy, the regional employ-ment multipl ier obtained by this method w i l l always overstate the true value of the mult ipl ier . Three sources of error which were encountered include (1) the product mix problem, (2) incomplete external trade data for both the benchmark economy and the study region, and (3) fai lure to adjust employment by industry data of the bench-, mark economy in order to account for indirect exports. The product mix problem can not be completely remedied. Unless the last two sources of error are resolved, the value of the mult ipl ier obtained by the location quotients w i l l be unreliable for use in impact analysis, except to set an extreme upper l imit for the mult ipl ier . It may be possible to develop more complete external trade information for both regions and the province. Indirect exports may be accounted for i f an input-output matrix were developed for Br i t ish Columbia. Impact of the Close Ut i l izat ion Policy Owing to a lack of suff icient data and time, the impact of 184 the close ut i l i zat ion policy could not be determined precisely. Given the assumptions of this study, i t was possible to estimate a range of magnitude and the direction of the regional employment impact of the forest policy change. Of the variables used in the analysis, only the values of the lumber recovery factor, which were used to estimate levels of lumber production, were not based directly upon published information. Instead, lumber recovery factor values were developed in consultation with a sawmill expert of the Western Forest Products Laboratory. Therefore, the values which were used in this study should be fa i r l y reasonable. However, a small change in any one of the assumed values of the lumber recovery factors may signif icantly change the estimated employment impact of adopting the close ut i l i zat ion policy. For example, i f the lumber recovery factor which was assumed to prevail in the absence of the close ut i l i zat ion policy was decreased by 10% from 7.50 to 6.75 board feet per cubic foot, the corresponding number of sawmill jobs would decline from 2,295 to 2,066 in 1971 and from 2,395 to 2,130 in 1980. This 10% change would decrease the impact of the close ut i l i zat ion policy on basic employment, in 1971, by 31% using the empirical sawmill employment estimate, and by 127% using the extrapolated estimate. In 1980, the impact of the policy would be decreased by 29% and 32% using the empirical sawmill employment estimate with 1965 and recent data respectively, and by 40% and 59% using the extrapolated sawmill employment estimate with recent and 1965 data respectively. 185 Short-Term Impact 1. The sawlog timber portion of quotas was decreased, while the small-wood portion was increased. 2. Average productivity in logging was decreased in the region because the rugged terrain does not permit a signif icant degree of mechanization in logging beyond the adoption of wheeled skidders. As a result of extending the intensive margin of logging, employment increased. Further increases in logging employment resulted from the extension of the timber supply at the extensive margin. 3. More sawmills with capacities of less than 30 M fbm per 8-hour sh i f t remained in the industry than was indicated by the empirical sawmill employment analysis. However, the increase in timber supplies accelerated the trend toward larger and high-speed sawmills. Average productivity increased as average daily capacity increased. Sawmilling employment declined because the effect of increased productivity on employment surposed the normal effect of increased lumber production. 4. In 1971, i t was estimated, using the empirical sawmill employment analysis, that there were between 4% and 12% less jobs in the region than there might have been i f the close ut i l i zat ion policy had not been implemented. Using the extra-polated sawmill employment analysis, i t was estimated that there were between 0.6% and 1.8% less jobs, in 1971, due to the policy. 186 Long-Term Impact By about 1980, without the close ut i l i zat ion policy, changes in forest industry structure and market demands, which would have resulted from economic forces alone, would have led to the same levels of annual harvests, tree sizes harvested, average productivity and, average sawmill capacity as had been achieved ear l ier by implementing the policy. Suggested Improvements in Estimation Methods It has been demonstrated that the economic base mult ipl ier derived by the location quotient technique should be used with caution by regional economic planners. Future work in regional economic planning in forestry should be directed toward improving current knowledge of the production functions of the forest industry within regions. Further insight into the nature of these processes w i l l enable planners to estimate impacts of forest policy changes more accurately than is currently possible. Timber harvest projections can be determined more precisely than by extrapolation by f i r s t forecasting market demands for forest products and relating these to economically available timber supplies. Reliable predictions of logging productivity can not be achieved by extrapolating past trends, because of changing scaling rules and probable yearly inconsistencies in reported employment. Instead, logging productivity forecasts should be based upon 187 productivity research, regional logging conditions and industry studies. From the results of these studies, i t would be possible to determine how soon logging innovations which are feasible in the region w i l l be adopted. The B.C. Forest Service may have much of the required information already in their stumpage appraisal f i l e s and working plans. Rather than extrapolating average productivity trends, oroductivity in sawmilling could be predicted more precisely i f " industry structure changes could be forecasted and i f employment data by sawmill capacity were available. The survival technique, which is used to determine the existence of economies of scale, could be modified to estimate future industry structure. A similar technique, referred to as the cohort-survival technique, has been used for a long time by demographers to forecast future population levels by age and sex groups. This technique might be applicable to studies in changes in sawmill industry structure. Although the precision of forecasts may be improved by using more sophisticated techniques, accuracy can only be improved by using accurate information. The results of this investigation provide information about the impact of a policy on regional employment. Although employment is a primary concern to governments, other costs and benefits which result from alternative policies must be considered as wel l . Conversely, many public forest policies and forestry investments are just i f ied by public agencies on the basis of the allowable annual cut effect. Since these agencies are charged with managing forest 188 resources in the public's interest, the impact of proposed policies and investments on employment should be an integral part of their analyses of benefits and costs. 189 FOOTNOTES CHAPTER I 'Essential ly, close ut i l i zat ion policy involves the option of an operator of Togging to close ut i l i zat ion standards in return for which the operator is allowed to increase his annual allowable cut up to one-third of i t s former level . Close ut i l i za t ion standards in the Interior constitute logging a l l wood between a 12-inch stump and a 4-inch top diameter of a l l trees of 7.1-inches diameter at breast height and larger; on the Coast, a 12-inch stump and a 6-inch top diameter of a l l trees 9.1-inches diameter at breast height and larger. Allowance is made for decay but not for waste and breakage. Applicants for close ut i l i zat ion sales and cutting permits must have a one year contract for chips, which usually requires that operator have a sawmill with barking and chipping equipment. Stumpage for smallwood is charged at a f la t rate of 55 cents per cunit (100 cubic feet) unti l 1978. The close ut i l i zat ion policy w i l l be discussed in more detail further in this thesis. CHAPTER II 'Spatial equilibrium transportation models are used to deter-mine the spatial distribution of industries which w i l l result in a shipment pattern which wi l l minimize transportation costs between producing and consuming regions. o Shift-share analysis gauges the economic growth performance of a regional economy compared to a reference economy, such as a nation, with-respect to changes in employment due to regional efficiency and to regional industrial composition. 190 CHAPTER III The service industries include the Transportation, communi-cations and other u t i l i t i e s industries; Finance, insurance and real estate industries; Community, business and personal service industries; and Public administration and defence as described in Stat ist ics Canada, Standard Industrial Classif ication Manual, Information Canada, 1970, pp. 23-43. 'In 1972, about 70% of the area of the Big Bar Public Sustained Yield Unit was included in the newly formed Cariboo Forest D is t r i c t . 3A tree Farm Licence (TFL) is an agreement between a forest products company and the B.C. Forest Service whereby the company has exclusive cutting rights on a parcel of Crown and private forest land. The TFL is renegiotable every 21 years. In return, the company must manage the TFL on a sustained yield basis according to an approved management plan. Sustained y ield forest management consists of manag-ing a parcel of forest land to y ie ld equal or increasing harvests of timber annually or periodically in perpetuity. A^ Pulp Harvesting Area is an area of forest land which is subject to an agreement between a pulp company and the B.C. Forest Service which gives the company the right of f i r s t refusal to purchase wood chips which are manufactured from timber harvested from the area for a renewable term of 21 years. Each PHA consists of several Public Sustained Yield Units (see footnote 5). See Ralph A. Fowler, "The Pulpwood Potential in Pulpwood Harvesting Area No. 2.(Kamloops)," B.S.F. thesis , Fac. For., U .B .C , 45 pp. for a detailed description of PHA No. 2. Weyerhaeuser has recently surrendered their exclusive right to log pulpwood in PHA'No. 2 (see Dept. of Industrial Development, trade, and Commerce, "The Li l looet-Nicola Region," V ictor ia , 1972b, p. 60). bA Public Sustained Yield Unit (PSYU) is a parcel of forest land which is managed on a sustained y ie ld basis by the B.C. Forest Service. Timber within PSYU's is disposed of by temporary tenures called Timber Sales. Forest Service Reserve is a portion of the allowable annual cut of a PSYU which is held by the B.C. Forest Service in case of timber losses resulting from catastrophes such as forest f i r e s , disease epidemics, insect infestations and storms. 191 CHAPTER IV 'Since the time of writing this thesis, the B. C. 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Participation on a panel discussion on the close ut i l i zat ion policy at the Cariboo Lumber Manufacturers Association's Annual Meeting, March, 1966, Williams Lake, B.C. reported in the Truck Logger 22(5):56-58. Main, A.C. 1971. The impact of forestry and forest-related industries on a local economy, Baldwin County, Alabama. Ph.D. thesis, Auburn Univ. Auburn, Alabama, 279 pp. Maki, Wilbur R., Con H. Schallau, and John H. Beuter 1968. Importance of timber-based employment to the economic base of the Douglas-f i r region of Oregon, Washington and northern Cal i fornia. PNW For. and Range Exp. Stat . , U.S.D.A. For. Ser. Research Note PNW-76, 6 pp. 197 McGraw, W.E. 1962. Variable factors affecting skidding production in logging. Canadian Forestry Service, Ottawa, Tech. Note No. 28, 15 pp. Mcintosh, J.A. 1973. Canadian Forestry Service, Western Forest Products Laboratory, Vancouver, B.C., Interview, 10 May 1973. Mcintosh, J.A. 1968. An example of how close-U harvesting could affect wood volumes and logging practices. Canadian Forest Industries, 88(7): 44-51 (reprint). Mcintosh., J ,A. and J . Csizmazia 1965. Harvesting lodgepole pine in the B.C. Interior. Canadian Forest Industries, (June 1965) reprint. 5 pp. McLeod, M.R. 1971. The degree of economic concentration in the Brit ish Columbia forest industry. B.S.F. thesis, Faculty of Forestry, Univ. B.C., Vancouver, 174 pp. Muench, John Jr . 1966. Impact of public vs. private ownership of timber land on a rural economy. Jour. For. 64(11): 721 -^727. Mull ins, D.K. 1967, Changes in location and structure in the forest industry of North Central Br i t ish Columbia: 1909-1966. M.A. thesis, Dept. of Geography, Univ. B.C., 131 pp. Munro, D.W. 1973. Weyerhaeuser Canada L td . 0 Kamloops, B.C., Interview, 9 January 1973. Nagle, George S. 1970. Economics and public policy in the Forestry sector of Br i t ish Columbia. Ph.D. thesis, Yale University, 198 pp. + bibliography. Neighbour, B.E. 1973. B.C. Forest Service, Kamloops, B.C., Interview, 10 January 1973. Nixon, G.R.W. and D.C. Gunn 1957. Fell ing and bucking time studies. B.C. Lumberman 41(3): 14, 16, 18. Ottens, J . 1971. Foreign investment, in the Br i t ish Columbia forest industry. Forestry 519 Report, Faculty of Forestry, Univ. B.C., 69 pp. Pearse, P.H. 1971. Rationalization of Canada's west coast salmon fishery: an economic evaluation. Paper prepared for the O.E.C.D. Symposium on Fisheries, November, 1971, 29 pp., mimeo. Pearse. P.H. 1970. Conflicting objectives in forest policy: the case of Br i t ish Columbia, For. Chron. 46(6):281-287, 198 Pearse, P.H. 1965. Distortions in the market for forest land. For. Chron. 41(4):406-418. Perroux, Francios 1950. Economic space:, theory and applications. Quarterly Journal of Economics, vol . 64 (February 1950) in Friedmann, John and William Alonso, eds., 1965. RegionaT" Development and Planning, M.I.T. Press, pp. 21-26. Peters, J .E . 1969. 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The minimum requirements approach to the urban economic base. Papers and Proceedings of the Regional Science Association, vol . 6: 174-194. Waggener, Thomas R. 1972. Estimating the economic impact of changes in the supply of timber. College of Forest Resources, Univ. Wash., 12 pp., mimeo. Wi l l i s ton, R.G. 1969. Calculating allowable cut. Industrial Progress of the North, 2(2):5,32. Wi l l i s ton , R.G. 1966a. Address presented at the 56th Western Forestry and Conservation Conference, December 8-10, 1965, Vancouver, B.C. in the Truck Logger 22(l) :30-32, 34. Wi l l i s ton, R.G. 1966b. Brief submitted to the Legislative Select Standing Committee on Forestry, March, 1966, V ictor ia . Summarized in the Truck Logger (April 1966):16-17. 200 Wil l i s ton , R.G. 1966c. Address presented at the Interior Lumber Manu-facturers Association annual meeting, April 29, 1966, Penticton, B.C. in the Truck Logger, 22(7):32-34. Wi11iston s R.G. 1966d. Address to operators in the Kamloops Region, November, 1966, Kamloops, B.C., reported in the Truck Logqer 22(12):15. Wi l l i s ton , R.G. 1965. Address presented at the Truck Loggers Association Convention, January. 1965, Vancouver, B.C. in The Truck Logger 21(2):14-17. Wi l l i s ton, R.G. 1961. Address to the Northern Interior Lumberman's Association, May 24, 1961, Prince George, B.C. Wood, A.R. 1970. The growth and financing of integrated forest product companies in Brit ish Columbia. B. Com. thesis, Faculty of Commerce and Business Administration, Univ. B.C., Vancouver, B.C. Wrobel, Adnrzej 1962. Regional analysis and the geographic concept of region. Papers and Proceedings of the Regional Science Association, vol , 8: 37-41. Young, E.L. 1969. Calculation of annual allowable cuts. Address presented to the Northern Interior Lumberman's Association, January 15, 1969, Prince George, B.C. 39 pp. mimeo. 1 APPENDIX I - TABLE 1. Ranger d is t r i c t timbersheds, 1965 . Sawmi11 Number Wood Supply Sawmills (excluding separate planer mil ls) 2 3 Type Capacity PSYU Volume TFL (M cf per year) 1. 2. BIRCH ISLAND RANGER DISTRICT (No. 2.) Clearwater Timber Prod. Ltd. Birch Island Lbr. Co. Ltd. S 200 Raft TFL 18, S 65 Adams Raft 59 2,500 2,559 668 2,407 3,075 r o o 3. BARRIERE RANGER DISTRICT (No. 3.) Fadear Creek Lumber Co. Ltd. X-S 125 Barriere. Nehalliston Niskonlith North Thompson 3,693 1,418 116 81 5,318 KAMLOOPS RANGER DISTRICT (No. 4.) 4. Kuchak, John P 5 Kamloops 52 5 . Lingren, W.F. P .6 Kamloops 8 6 . Long & Son Lbr. Ltd, S 15 Kamloops 226 7. Pondosa Pine Co. Ltd. X-S . . 70 Kamloops Shuswap TFL 16. 1 ,152 136 1,500 2 , 7 8 8 8 , Balco Forest Prods. Ltd. X-S 50 Kamloops Niskonlith North Thompson 135 670 1 , 8 4 4 2 ,649 9 . B.C. Interior Sawmills Ltd. XCBS-S 140 Barriere Kamloops Nehalliston TFL 3 5 . 337 543 445 1 ,800 3,125 10. Buff Lumber Ltd. X-S 50 Kamloops 524 n . Frolich Sawmills Ltd. X, P P P 15 10 20 Kamloops Nehalliston Niskonlith 4 , 9 0 3 46 45 4 , 9 9 4 12, H.K. Lumber Ltd. X-S 60 Niskonlith Shuswap 519 460 979 13. Kamloops Lumber Co. Ltd. X-S 90 14. 15. 16. 17. 18. 19. 20. CHASE RANGER DISTRICT (No. 5.) Blanc, C P . Holding Lbr. Co. Ltd. Cave, Phi l ip & Green, R.J. Federated Co-op Ltd. S X-S P . X-S 5 130 5 60 MacKay, A.B. Raboch Sawmills Ltd. Thielman, J .E . G.W. P P P 12 17 7 Botanie Kamloops Niskonlith Raft Shuswap Shuswap Adams Niskonlith Salmon Arm Niskonlith Salmon Arm Shuswap Eagle Salmon Arm Salmon Arm Salmon Arm 2L SICAMOUS RANGER DISTRICT (No, 7.) Maclean Sawmills Ltd. P 17 Eagle 973 1,082 423 931 338 3,747 16 4,082 467 4,549 12 110 1,464 3,546 30 5,150 17 4 9 ro o co 1,288 22. Shuswap Timber Ltd. X-S 35 Eagle 353 LILLOOET RANGER DISTRICT (No. 8,) 23. Setor Lake Lumber Co. Ltd. X-S 40 Yalakom 50 24. Commercial Lumber Co. Ltd. X-S 65 Yalakom 1,752 P 25 25. Beaton Bros. Lumber Co. Ltd. P 25 Yalakom 22 CLINTON RANGER DISTRICT (No. 12.) 26. Cattermole - Thretheway P 15 Big Bar 1,293 Contractors Ltd. P 12 Botanie 44 o 27. Clinton Sawmill L td . P 30 Big Bar 1,890 P 20 P 20 P 20 ASHCR0FT RANGER DISTRICT (No. 16.) 28. Gateway Lbr. Co. Ltd. X-P 20 Big Bar 107 Botanie 2,444 2,551 29. Savona Timber Holdings Ltd. X-S 60 Big Bar 2,701 Botanie 1,465 Kamloops 177 4,343 MERRITT RANGER DISTRICT (No. 17.) 30. Aspen P.V. Lumber Ltd. X-S 50 Nicola Kamloops Similkameen 634 88 9 731 31. Coldwater Lbr. Co. Ltd. X-P 15 Nicola Similkameen 260 151 411 32. Drew Sawmills Ltd. X-S 40 Kami oops 97 33. Kamloops Pulp & Paper Co. Ltd. X-S 80 Botanie Kamloops Nicola 48 154 143 345 34. Nicklin Logging Co. Ltd. X-P 25 Nicola 374 35. Nicola Valley Sawmills Ltd. X-S 115 Nicola 2,396 36. Roth, Balser Sawmill X-P 30 Nicola 63 . BLUE RIVER RANGER DISTRICT (No. 18.) 37. Blue River Sawmills Ltd. X-S 75 North Thompson 1,251 38. Janes, Art Hurricane Steel Industries S 20 North Thompson 22 39. Yellowhead Sawmills Ltd. S 50 North Thompson 674 40. Kamloops Pulp & Paper Co. Ltd. X-S 75 North Thompson 1,528 885 1,413 100 MILE HOUSE (South) RANGER DISTRICT (No. 24.) (Portion with study region) 41, Greenlake Forest Prod. Ltd. X-S 20 Big Bar Lac La Hache 316 298 614 42. Komori Equipment Ltd. X-S 40 Big Bar Botanie 335 22 357 1. Source: Kamloops Forest D is t r ic t Annual Management Report, 1965, 2. Type - P - Portable; S - Stationary; X - planer, in conjunction with sawmill; C - Chipper; B - Barker; S - Smallwood side. 3. Capacity - M fbm per 8-hour sh i f t . 207 APPENDIX I - TABLE 2. Ranger d i s t r i c t timbersheds, 1971 . Sawmill ? 3 number Sawmills Type' Capacity (excluding separate planer mil ls) BIRCH ISLAND RANGER DISTRICT (No. 2.) 1. Clearwater Timber Prod. Ltd. (Vavenby Division) XCB-S 65 2. Clearwater Timber Prod. L td . XCBS-S 165 3. Weyerhaeuser Canada Ltd. (Vavenby Branch) XCBS-S 200 BARRIERE RANGER DISTRICT (No. 3.) 4. Fadear Creek Lumber Co. Ltd. XCBS-S 180 5. Gilbert Smith Forest Products Ltd. XCB-S 20 KAMLOOPS RANGER DISTRICT No. 4. 6. Balco Forest Products Ltd. VXCB-S 135 Wood Supply PSYU TFL I.U. C U . Total Volume (M cf per year) Adams 668 223 891 Raft. 2,985 995 3,980 TFL 18 2,500 3,300 5,800 6,153 4,518 10,671 Adams 150 50 200 North Thompson 2,881 960 3,841 Raft 1,829 610 2,439 4,860 1,620 6,480 Barriere 3,773 1,258 5,031 Nehalliston 1,534 511 2,045 North Thompson 81 27 108 5,388 1,796 7,184 Barriere 141 0 141 Nehalliston 62 21 83 Niskonlith 24 8 32 Raft 6 0 6 233 29 262 Kamloops 3,621 1,207 4,828 Niskonlith 848 283 1,131 North Thompson 1,863 621 2,484 -. 6,332 2,111 8,443 208 7. H. Buff Lumber Co.. Ltd. XCB-S 35 8. Crown Zellerbach Canada XCB-S 59 9. Long & Son Lumber Ltd. X-S 19 10. Weyerhaeuser Canada Ltd. (B.C. Interior Sawmills Ltd.) XCBS-S 150 CHASE RANGER DISTRICT (No. 5.) 11. ' Bischoff, Arthur P 3 12. Blanc, Chas. P. S 5 13. Holding Lumber Co. Ltd. XCBS-S 160 P 2G 14. Lewis, George (G & M Cedar Ltd.) P 5 15. Bridge, G.D. P 3 16. L i t t l e River Shake & Shingles Co. S 2 SALMON ARM RANGER DISTRICT (No. 6.) 17. Bell Pole Co. Ltd. P 6 18. Federated Co-Operatives Ltd. VWXCBS-S 252 19. . Tappen Valley Timber Ltd. CBS-S 65 20. Thielman, J . E . , & G.W. P 5 21. Whitehead, Howard P 3 Kamloops 1,544 515 TFL 16 1,500 800 3,044 1,315 Kamloops 229 76 TFL 35 1,800 1,700 Barriere 362 121 Kamloops 1,710 570 Nehalliston 445 148 Niskonlith 767 256 5,084 2,795 Shuswap 17 0 Shuswap 16 0 Salmon Arm _2_ £ 18 0 Adams 4,407 1,469 Niskonlith 469 ' 156 47876" T^bTb Shuswap 10 0 Shuswap 19 0 Shuswap 9 0 Shuswap 264 0 Salmon Arm 47 0_ 311 0 TFL 33 385 403 Niskonlith 294 98 Salmon Arm 1,543 514 Shuswap 5,261 1,754 Eagle 386 129 7,869 27898" Salmon Arm 48 16 Salmon Arm 10 0 Salmon Arm 6 0 2,059 2,300 4,359 305 3,500 483 2,280 593 1,023 » 77879* 17 16 2 T8 5,876 625 6,501 1° 19 9 264 47 311 788 392 2,057 7,015 515 10,767 64 10 6 209 SICAMOUS RANGER DISTRICT (No. 7.) Drew Sawmill Ltd. XCB-S 45 Rogers Pass Forest Prodts Ltd. X-S 20 LILL00ET RANGER DISTRICT (No. 8.) Commercial Lumber Co. Ltd. XCBS-S 110 CLINTON RANGER DISTRICT (No. 12.) B.C. Forest Products Ltd. P 16 Clinton Sawmills Ltd. P 15 (Part of) 100 MILE HOUSE (south) RANGER DISTRICT (No. 24.) Greenlake Forest Products Ltd. X-S 20 Komori Equipment Ltd. XCBS-S 45 ASHCROFT RANGER DISTRICT (No. 16.) Savona Timber Co, Ltd. VWXCBS-S 100 MERRITT RANGER DISTRICT (No. 17.) Aspen Planers Ltd. XCB-S 70 K.P. Wood Products Co. Ltd. XCB-S (central Division) (Weyco) Eagle 41 '41 55 Eagle 9 3 12 Yfflakom 2,997 999 3,996 Big Bar 1,293 0 1,293 Botanie 44 0, 44 T 7 3 3 T 0 • "T733T Big Bar 1,890 0 1,890 Big Bar 316 0 316 Lac La Hache 29j3 0 298 614 0 614 Big Bar 668 223 891 Botanie 22 0 22 Lac La Hache • 853 284 1,137 1,543 507 2,050 Big Bar 2,808 936 3,744 Botanie 3,909 1,303 5,212 6,717 27219" 87956' Kamloops 88 29 117 i i c o l a 1,425 475 1,900 175T3 50? 273T7 Botanie 1,021 340 1,361 l i c o l a 3,143 1,048 4,191 7J7T6T 1,388 "5~55Y 210 32. Nicola Valley Sawmills Ltd, 33. O'Neil & Devine Ltd. XCBS-S P XCBS-S 150 15 65 Nicola Similkameen Similkameen 2,656 1,952 4,608 58 885 651 1,536 19 3,541 2,603 67T4T 77 34. 35. 36. Anderson, Otto BLUE RIVER RANGER DISTRICT (No. 18.) P 5 Fedoruk, Gordon (Cedar Creek Products) Mazur Timber Co. Ltd. SP SP 5 10 North Thompson North Thompson North Thompson 4 22 0 0 4 22 1. Sources: Kamloops Forest D is t r i c t , "List of Established Licencees as of January 1st, 1972-" "Sawmills and Planer Mi l ls by Ranger Distr icts" March 1st, 1972; and "TFL 's - Kamloops Forest D is t r i c t , 1970." 2. Type: P - Portable; S - Stationary; SP - Semi-Portable; X - Planer, in conjunction with sawmill; C - Chipper; B - Barker; S - Smallwood Side; V - Veneer; and W - Plywood Plant. 3. Capacity - M fbm per 8-hour s h i f t . 211 APPENDIX II - Employment by industry required for self -suff iciency in Br i t ish Columbia in 1961. Industrial Divisions Major Groups Three-Pi g i t Industries Sell ing Value of Factory Shipments ($000) Exports ($000) Imports ($000) Consumption ($000) Employment (number of persons) Workers per $000 Production Sel f -suf f ic ient Employment (number of persons) Agriculture 100,090a 24,200b 14,178b 94,068 2 a , 8 2 5 b » c , d 0.2380 22,388 Forestry 291,775 f !U400 b b 230,375 20,900e 0.0717 20,103 Fishing and Trapping 38,77# b b 38,778 16,805 s 0.4334 16,805 Mines (including mi l l ing) , Quaries and Oil Wells 188,542h 64,715b b 123,827 7,887C 0.0418 5,176 Manufacturing Industries 1,967,091 920,845 1,051,783 2,098,020 97,518 0.0489 125,033 (Non-durable Goods Manufacturings Industries excluding Paper and Al l ied Industries) ». 479,781 38,239 242,504 684,046 22,709 0.0473 s 41,719 Food and Beverage Industries 399,7771 38,000b : 63,527 425,304 15.4441 0.0386 16,417. Tobacco Products Industries' Rubber and Plastics Products Leather1 Industries Textile Industries ' • , Knitting Mi l ls Clothing Industries i 690] 2,135] 8,646 . N/A . 12.7131 b " . b 112 b N/A " 239° 23,700b N/A b 22,344? 30,548 N/A b 102,385 23,700 690 24,479 39,194 N/A 114,859 238! 7301 N/A . 1.5001 0.0386 0.0942 0.1115 0.0844 N/A 0.1180 915: 65 2,729 • 3,308 N/A : •-: 13,553-(Non-durable Goods Manufacturing Industries excluding Paper and A l l i e d ; Food and Beverage; and Print ing, Publishing and'Allied Industries) 24,184 239 178,977 202,922 2,533 0.1047 20,570 Print ing, Publishing and A l l ied Industries • . 55,820 i — — 55,820 4J7321 0.0848 4,73.2 (Durable Goods Manufacturing Industries) 1,487.310 882,615 .809,279 1,413,974 73,548 0.0495 69,992 \', (Forest Products Industries) 879,246 694,216 — "185,030 46,930 0.0534 9,715 Paper and A l l ied Industries 323,1431' 250,455b b 72,688 l l , 1 2 2 t 0.0344 2,500 212 Wood Industries Sawmills (excluding shingle mil ls) Sash, Door and Planing Mi l l s (excluding hardwood flooring) (Sawmilling) Veneer and' Plywood Mi l l s Shingle Mi l ls Wood Box;factories Coffin and Casket Industry Miscellaneous Wood Industries (Other Wood Industries) (Non-Forest Products^ Industries) Furniture and/Fixture Industries Primary Metal Industries Metal Fabricating Industries (except machinery and transport tation equipment industries) Machinery Industries (except electr ical equipment) Transportation Equipment Industries Electr ical Products Industries Non-Metallic Mineral Products Industries Petroleum and Coal Products Industries Chemical and Chemical Products Industries Miscellaneous Manufacturing Industries Confidential.. Construction Industries Transportation, Communication and Other U t i l i t i e s 556,1031 443,761 - — 368,7841 349,300b — 66.6191' 435,403 349,300 — 91.4141 71 ,347 b b 16,183] 812! 799] 11,492'' 29,286 15,997b 7,117b 23,114 b ; HI b 608,061 188,399 809,279 22.2601 b 19,732b 177,7261 T46,385b 237,300b 158,231 8,614 ' 300,539 83.8351 8,614 225,100b 20.9271 b b 53.4691 b 59,500 b 17.4191 b 15,939 32,224n — — ' 110,0511 • 71,8611 33,400b .46,300 b 12.8391 ' ' — 205,408b 5.4531 — N/A N/A N/A N/A N/A N/A 112,342 19,484 66,619 86,103 20,067 186 812 799 4,375 6,172 1,228,941 41,992 268,640 434,217 300,321 20,927 112,969 33,358 32,224 110,051 84,761 218,247 5,453 N/A 35,80s 1 24,215 1 3 .321 1 27,536 6,146 1,373J 93] 76. 584 1 2,126 26,618 1,926 6,641 11,011 4,959 i 1.619 1 4 , 4 3 s 1 1,02s 1 1.8321 1,2941 2.517 1 1.261 1 369 1 27,507° 0.0644 0.0632 0.0672 0.0848 0.1145 0.0951 0.0508 0.0726 0.0438 0.0865 0.0374 0.0696 0.0590 0.0569 0.0118 0.0359 0.0982 0.0677 7,215 5,461 .1,348 15 93 •76' 222 406 73,599 3,469 10,047 30,221 1,968 1,832 1,294 2,967 21,432 369 27,507 N/A 59,330 l 59,330' 213 Trade Wholesale Trade Retail Trade Finance, Insurance and Real Estate Community, Business and Personal Service•Industries Public Administration and Defence Industry Unspecified or Undefined N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 92,411 C» J 28,747*; • 6 3 , 6 4 7 C s J 20,510 c 103,983' 46,001C 15,997C 92,411 28,764 63,647 20,510 103,983 46,001 15,997 Totals 532,674 555,244 Sources: a) Stat ist ics Canada, 1966 Census of Canada - Agriculture, Br i t ish  Columbia, 96-611, Vol. 5(5-4), Table 1. b) Peters (1969). c) Stat ist ics Canada, 1961 Census of Canada, "Labour Force: Earnings, Hours and Wages by Industries and Provinces", 94-542, Vol. Table 28. d) Stat ist ics Canada, 1961 Census of Canada. Agriculture, Br i t ish Columbia 96-540. e) Davis and Hainsworth (1970), Table 1. f) Stat is t ics Canada, Logging, 25-201, 1961. g) Stat ist ics Canada, Fisheries S ta t i s t i cs : Br i t i sh Columbia, 24-208, 1961. h) Stat is t ics Canada, Preliminary Estimate of Canada's Mineral Production 26-202, 1962. i ) Stat is t ics Canada, Manufacturing Industries of Canada. Section F. Br i t ish Columbia, Yukon arid Northwest Tern tor i es, 31-208, 1961, Table 6. j ) Stat ist ics Canada, 1961 Census of Canada, Wholesale and Retail Trade, 97-502, Table 4. 214 APPENDIX III - Allowable annual cut increases of individual f i rms 1 . Volume 1965 Volume - 1971 Volume Increase Sawmills Total Sawlog Portion Smallwood Portion Total Clearwater Timber Prod. Ltd. Birch Island Lumber Co. Ltd. Fadear Creek Lumber Co. Ltd. BIRCH ISLAND RANGER DISTRICT (R.D.2.) 2,559 3,075 5,878 4,100 BARRIERE RANGER DISTRICT (R.D.3.) 5,308 7,078 KAMLOOPS RANGER DISTRICT (R.D.4.) Kuchak, John 52 Lingren, W.F. 8 Long and Son Lbr. , Ltd. 226 Pondosa Pine Co. Ltd. 2,788 Balco Forest Prod. Ltd. 2,649 B.C. Interior Sawmills Ltd. 3,125 Buff Lumber Ltd. 524 Frolick Sawmills Ltd. (including Halston Lbr. L t d . , Terrace Forest Prod. L td . , Joseph Fro l i ck ) . 4,994 H.K. Lumber Ltd. 979 Kamloops Lumber Co. Ltd. 3,747 52 8 226 3,554 3,487 5,085 524 5,024 1,305 4,635 3,879 2,797 4,369 28 5 122 1,995 2,268 2,400 283 2,715 817 2,792 M cf per year 1,999 1,303 2,709 24 3 104 1,559 1,219 2,645 241 2,309 488 1,843 3,319 1,025 1,770 0 0 0 766 838 1,960 0 30 326 888 Sawlog Portion Smallwood Portion 1,320 • 278 - 939 • 24 3 • 104 • 793 • 381 - 685 • 241 -2,279 • 162 • 955 1,999 1,303 2,709 24 3 104 1,559 1,219 2,645 241 2,309 488 1,843 CHASE RANGER DISTRICT (R.D.5.) Blanc, C P . 16 21 13 Holding Lumber Co. Ltd. 4,549 6,066 3,937 SALMON ARM RANGER DISTRICT (R.D.6.) Cave, Phi l ip & Green, R.J. 12 16 10 Federated Co-operatives Ltd. 5,535 7,655 4,730 MacKay, A.R. 17 23 14 Raboch Sawmills Ltd. 4 5 3 Thielman, J .E . & G.W. 9 12 A'* 8 SICAMOUS RANGER DISTRICT (R.D.7.) MacLean Sawmills Ltd. 1,288 1,717 1,099 Shuswap Timber Ltd. 353 471 301 LILL00ET RANGER DISTRICT (R.D.8.) Seton Lake Lumber Co. Ltd. 50 67 40 Commercial Lumber Co. Ltd. 1,752 2,336 958 Beaton Bros. Lumber Co. Ltd. 22 29 17 CLINTON RANGER DISTRICT [R,D.12.) Cattermole - Thretheway 1,337 1,783 948 Contractors Ltd. Clinton Sawmills Ltd. 1,890 2,520 1,336 ASHCROFT RANGER DISTRICT (R.D.16.) Gateway Lumber Co. Ltd. 2,551 3,402 1,966 Savona Timber Holding Ltd, 4,343 5,731 3,138 8 2,129 5 1,517 3 612 2,129 6 2,925 9 2 4 4 2,120 6 1 2 805 3 1 1 6 2,925 9 2 4 618 170 429 118 189 52 618 170 27 958 12 17 584 7 10 374 5 27 958 12 835 1,184 446 630 - 389 - 554 835 1,184 1,436 2,593 851 1,388 - 585 -1,205 1,436 2,593 216 MERRITT RANGER DISTRICT (R.D.17.) Aspen P.V. Lumber Ltd. 731 945 537 Coldwater Lumber Co. Ltd. 411 548 323 Drew Sawmills Ltd. 97 97 52 Kamloops Pulp & Paper Co. Ltd. 3,345 4,409 2,509 Nick!en Logging Co. Ltd . 374 497 283 Nicola Valley Sawmills Ltd. 2,396 3,195 1,821 Roth, Balser Sawmill 63 84 48 BLUE RIVER RANGER DISTRICT (R.D.I8.) Blue River Sawmills Ltd. 1,251 1,668 1,101 Janes, Art 22 29 19 Yellowhead Sawmills Ltd. 674 899 593 Kamloops Pulp & Paper Co. Ltd. 2,413 3,217 2,123 100 MILE HOUSE (south1 RANGER DISTRICT (R.D.24.) Greenlake Forest Prod. Ltd. 614 818 461 Komori Equipment Ltd. 1,210 1,613 936 Totals 67,363 90,829 5.4,254 1, Source: Appendix I, Table 1 and Table .15, \ 408 225 45 1,900 214 1,374 36 214 137 0 1,064 123 799 21 567 10 306 1,094 417 7 225 804 194 88 45 836 91 575 15 408 225 45 1,900 214 1,374 36 150 3 81 290 567 10 . 306 1,094 357 677 204 403 - 153 - 274 357 677 36,575 23,466 -13,109 36,575 

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